Though it goes against what would seem to be common sense, sometimes allowing your home to go to foreclosure is better than conducting a short sale.
In Arizona, we have a law that states if you have a mortgage that you incurred at the purchase of your home and the home ends up in foreclosure, the lender cannot pursue you for a deficiency balance (with certain restrictions). This law may apply to both first and second mortgages, as long as they were used to purchase the home, not to cash out equity at a later date.
This is a huge benefit to Arizona homeowners in this housing crisis, but this benefit may be lost if you short sell your home. It is important to review your situation with an attorney experienced in debtor's rights, bankruptcy or real estate in order to determine whether your mortgage is subject to the anti-deficiency statute.
If your mortgage does not fall within the definition of a "purchase money mortgage" as the anti-deficiency statute requires, it may be in your best interest to consider a short sale.
The downsides are that the short sale can take months to be approved, and there have been cases in which the home ends up at auction even though a short sale is awaiting approval. There can be a lot of uncertainty with a short sale. The benefit is that your credit will not be as heavily impacted by a short sale as it will by a foreclosure.
While many of my clients are extremely concerned about the impact on their credit score in making important financial decisions, I believe it can be detrimental to make decisions solely based on what may be best for your credit score in the short term. Sometimes short-term gain can mean long-term harm.
• Ahwatukee Foothills resident Denise K. Aguilar is a local attorney whose bankruptcy practice focuses in consumer and small business bankruptcy. Reach her at (480) 455-1881 or visit www.aguilarlawonline.com for more information on the Aguilar Law Firm, P.C.