Short Sale vs Lien in Leu of Foreclosure (real estate, recourse, approved)
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A "lein-in-lieu of" is still treated as a foreclosure as far as getting approved for a mortgage and a short sale just reflects the negative mortgage history that precedes it. To answer your question, a lien-in lieu-of is worse.
Now a short sale can also bring on a collection or a judgment if the lender pursues a "deficiency judgment" against you. That is when the lender comes after you for the difference between what you owed them and what they received in a short sale, e.g., you owe them $100,000 and they sell for $80,000...the lender can take action against you on the remaining $20,000. I always negotiate this point with the lender when I do a short sale, that no deficiency judgment will will pursued and the short sale is considered by the lender to be a full satisfaction of the debt. In today's world, where too many lenders own too much real estate, this is generally not a problem when addressed in negotiation.
A "lein-in-lieu of" is still treated as a foreclosure as far as getting approved for a mortgage and a short sale just reflects the negative mortgage history that precedes it. To answer your question, a lien-in lieu-of is worse.
Now a short sale can also bring on a collection or a judgment if the lender pursues a "deficiency judgment" against you. That is when the lender comes after you for the difference between what you owed them and what they received in a short sale, e.g., you owe them $100,000 and they sell for $80,000...the lender can take action against you on the remaining $20,000. I always negotiate this point with the lender when I do a short sale, that no deficiency judgment will will pursued and the short sale is considered by the lender to be a full satisfaction of the debt. In today's world, where too many lenders own too much real estate, this is generally not a problem when addressed in negotiation.
I was going to say, you are more likely to have a deficiency judgement in a DEED-in-lieu, than in a short sale. A short sale by definition is the negotiated release of a mortgage lein. The person handling the short sale for better make sure there is a provision that releases you from the debt obligation. Now how the IRS goes after you for the short fall in a short sale is a whole other conversation.
I'm not that familiar with deed in lieu's but I can't imagine anyone signing over their deed without at least knowing they won't be come after years down the road. Then again, alot of bad things happen when people are in this situation.
In an actual Foreclosure, deficiency judgements become more of a possibility, but still not likely, depending on the circumstances of the foreclosure.
If you do a deed-in-lieu, make sure the paperwork specifically says "without recourse" so they don't come try to sue you for a deficiency later on. your credit will be damaged but if you are already in this situation, that should be the least of your worries. try to get out if you know you can't pay the mortgage and move on with your life.
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