Benefits
and
Downsides

Benefits

A short sale is advantageous because it typically releases the homeowner of the debt owed and prevents foreclosure on their credit report as well as a possible waiver of any deficiency, the difference the property sells for versus the amount of the loan.
Short selling saves time and money for the lender who would otherwise end up acquiring the property in a foreclosure. Lenders prefer not to own real estate. As a result, lenders are usually motivated and willing to negotiate reasonable terms and conditions of the short sale.
A short sale allows you to extract yourself from a bad situation and begin to rebuild credit quickly while preventing the stigma of a foreclosure on your credit report.
A short sale can be removed from your credit report (a foreclosure can't) and you can often buy a new home three years after a short sale. A foreclosure might take up to 10 years.
When applying for new loans, past foreclosures must be disclosed whereas short sales do not require disclosure.

Downsides

A short sale may be reported as a charge off, meaning the debt is unlikely to be collected. The charge off may result in a temporary negative weight on your credit report
After a short sale, when you are ready to buy a house again, you might receive a higher interest rate than you would have, had you not gone through a short sale. This effect is lessened over time and otherwise leaves your credit with a better rating than a foreclosure might have.
If the property is not owner occupied (if you are not living in the home), there may be tax consequences. The Mortgage Debt Forgiveness Relief Act of 2007 does not cover homes that have been refinanced to take cash out of equity for other expenses, second homes, vacation homes, or rentals. Relogic suggests that you contact your CPA for more information regarding taxes and short sales.

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