Short Sale or Foreclose? Either Way, You Lose.

Five years into the housing crisis, many Americans are still saddled with homes they cannot afford. Close to 16 million people, or nearly 30 percent of borrowers, owe more on their mortgages than their homes are actually worth according to Zillow.com, an online real estate marketplace.

On average, lenders foreclose on 2,440 homes every day, a rate that hasn't budged for the last year, according to CoreLogic, a consumer data company.

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Perhaps as a result of this seemingly never-ending crisis, many Credit.com readers are asking sophisticated questions about the best ways to rid themselves of insurmountable mortgage debts. One reader, who uses the screen name "Michael," obviously has been doing his homework. But he's still confused.

"There are a lot of contradictory statements [on the internet] about how the short sale appears on your credit, and if it is better than a foreclosure," Michael says in response to a Credit.com story. "I'm really not sure?"

It can get confusing, especially if you delve deep into the details, says Barry Paperno, Credit.com's credit scoring expert. But in the end, few of those details matter. Whether Michael goes for a short sale or a foreclosure, his credit score will suffer.

"The short answer is that they're very similar," Paperno says. "Either way you weren't able to pay as agreed, and that's what lenders are concerned about."

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Michael has two mortgages on this house, and he asked whether both will be cleared away by the short sale, which is being completed under the federal Home Affordable Foreclosure Alternative (HAFA) program. This kind of arrangement is possible, but he needs to pay close attention to the details of the agreement, says Gerri Detweiler, Credit.com's consumer credit expert.

"This can get especially tricky if there is a second mortgage," Detweiler wrote in a Credit.com story, "but it's not impossible to wipe out deficiencies on both first and second mortgages."

Image: Images of Money, via Flickr