The average legal cost to a homeowner going through a foreclosure is around $7,500, according to the U.S. Congress Joint Economic Committee. Add in the additional costs that can accumulate throughout the sometimes lengthy foreclosure process, which could be just the tip of a burdensome financial iceberg. And if the homeowner is unable to afford payments, the foreclosure could eventually lead to a financial situation where bankruptcy -- with its significant credit implications for the borrower and costs for the lenders -- is the only option [source: Christie].
Mortgage lenders won't always file for a deficiency judgment in a foreclosure case. It depends on the situation and the likelihood that they can win back the amount owed on the property. However, if all sides agree on a short sale, a new buyer in a better financial state could absorb some of what the original homeowner owes the lender. This would ease the original homeowner's hardship and put him in a more manageable position [source: Foust].
Likewise, a short sale can drastically reduce the amount a bank may be looking to recoup from the homeowner. For example, if a short sale lets the homeowner sell a $200,000 home for $175,000, the bank will be much less likely to pursue a deficiency judgment.