Short sale affects credit less.
Generally lower fico hit and the GSE'(fannie and freddie)s have a short moratorium on purchasing after (like 2 years).
This is in contrast to foreclosure/deed in lieu which has a 5-8 year moratorium.
If the loan is non-recourse, either of these will erase the debt.
If the loan is recourse, the process of recovering money will be more costly. The amount that the lender pursues the borrower for will likely be higher with an REO than with a short.
Also, there are ways to declare the recourse loan non-recourse that are more feasible in a short (if you need a legal referral for that let me know).
Bottom line, shorts tend to be less destructive but are (much) more of a pain in the ass. Foreclosing involves essentially doing nothing and just changing your phone number (collection calls). I actually teach a course on making this decision and the inertia of a foreclosure vs the stress of a short is the biggest decider.
OT: so my broker wants us to resurrect the foreclosure tours. What does everybody think of the name “REO Speedwagon”?
