I have a client wondering whether it makes more sense to just allow her house to foreclose or try to do a short sale.
Her financial advisor advised her she should let it go to foreclosure because if she opts for a short sale, she’ll get a 1099 for the difference between what she owes and what the bank ends up selling the property for. AND of course, she’ll have to pay taxes on that 1099 income.
I’m a Realtor and my thoughts are she should do a short pay because if she goes to foreclosure, she’ll be responsible for that difference PLUS costs which will amount to much more than paying taxes (Plus you can always strike a deal with the IRS for a payment plan without it affecting your credit). The bank that has the deed to her property isn’t going to let her get away free if she forecloses. They’ll come after her for that money with those fees for years, years.
And, with a short pay, the account comes up “settled” in her credit report.

My question: How does one’s credit score differ between a short pay and a foreclosure? Is there a big difference?