The homeowner can avoid having a foreclosure or a deed-in-lieu of foreclosure on their credit record by short selling. Most lenders report “settled” upon successful closure of a short sale, and in many negotiated settlements, the lender agrees not to file a deficiency judgment and the borrower may receive relocation assistance. Many reports state that if a borrower misses 3-5 mortgage payments and short sells, their credit score will be brought down by an estimated 30-60 points. A foreclosure will severely damage credit, between 150-400 points. Every mortgage application asks the buyer if they have ever foreclosed on a home, and having a foreclosure on record is a huge obstacle to attaining a future mortgage.
Assuming the homeowner is not making monthly mortgage payments, then they can continue to live in the property without making payments for the duration of the short sale process, which can take many months. A successfully negotiated short sale will result in the release of the homeowner from the loan, and make the bank agree to not pursue a deficiency judgment or lawsuit. This will allow the seller to recover from the short sale and repair their credit relatively quickly. A short sale will not be reported on a person’s credit history, and is not a challenge to employment.