Short sale vs. foreclosure vs. deed in lieu: which is better for an FHA borrower in Colorado? For most FHA homeowners who cannot keep the house, an FHA short sale (HUD calls it a Pre-Foreclosure Sale) does the least damage. It can pay you up to $3,000 to move. It ends the FHA debt. It also lets you buy again sooner. A deed in lieu of foreclosure comes second. Foreclosure comes last. This page compares all three side by side. It covers credit, waiting periods, money, timelines and what happens to the house. Questions? Call or text 303-955-4220.
Every FHA home that goes all the way through foreclosure can end up on the HUD Home Store as a HUD home. The steps below happen before that point.
What are my three options if I can’t keep my FHA home?
An FHA borrower who cannot afford the payment has three main exits.
- Short sale (FHA Pre-Foreclosure Sale, or PFS). You sell the home on the open market for less than you owe. The FHA servicer accepts the sale proceeds and releases the rest of the FHA debt.
- Deed in lieu of foreclosure. You sign the house back to the servicer. You walk away and the FHA debt is released.
- Foreclosure. The servicer starts a Colorado Public Trustee foreclosure and the home is sold at auction. If it does not sell to a third party, it usually goes to HUD and is listed as a HUD home.
The servicer must review you for FHA loss mitigation first. Keep-the-home options, like a loan modification or a partial claim, come before any of these three.
Which option hurts my credit the least?
All three show up on your credit report. The short sale usually does the least damage. The report shows “settled for less than owed” or something like it, not a foreclosure. A deed in lieu is reported as a deed in lieu. A foreclosure does the most damage and stays on your report for seven years.
The bigger difference is how soon you can buy again.
How long until I can buy a home again?
Waiting periods depend on the loan you use next. This table shows the common rules.
| Next loan | After a short sale | After a deed in lieu | After a foreclosure |
|---|---|---|---|
| FHA | 3 years (can be 0 if you were current when you sold) | 3 years | 3 years |
| VA | Often 2 years | Often 2 years | 2 years |
| Conventional (Fannie Mae) | 4 years | 4 years | 7 years |
Shorter waits can apply with documented hardship. A lender confirms the exact rule for your file.
A short sale is the only path that can mean no wait at all on a new FHA loan. That happens when you made every payment on time before the sale. Read more in buying a HUD home after a foreclosure.
Do I get any money from an FHA short sale or a deed in lieu?
Yes, often. An FHA Pre-Foreclosure Sale can pay the owner up to $3,000 in relocation money at closing. A deed in lieu can also come with a smaller cash payment to help you move. The servicer sets the amount. A foreclosure pays you nothing.
FHA also limits how low the short sale price can go. The net proceeds have to meet HUD’s tiers of 88%, 86% or 84% of the home’s appraised value. The tier depends on how long the home has been on the market. The full rules are in our FHA short sale in Colorado guide.
Will I still owe money after a short sale, deed in lieu or foreclosure?
On an approved FHA Pre-Foreclosure Sale or deed in lieu, the servicer releases the rest of the FHA first-mortgage balance. A second mortgage, HELOC or FHA partial claim lien is separate. Each one has to agree to the deal. Get every release in writing before closing.
After a Colorado foreclosure, a lender can ask the court for a deficiency judgment. That is a court order for the shortfall. Debt that is forgiven can also count as taxable income. We are real estate agents, not tax advisors or attorneys. A tax professional should review your situation before you choose.
How long does each option take in Colorado?
- Short sale: about 3 to 6 months. That covers listing, getting an offer and servicer approval.
- Deed in lieu: about 2 to 4 months. The servicer usually wants the home listed for sale first. A deed in lieu is often what is left after a short sale attempt fails.
- Foreclosure: about 4 to 5 months from the Public Trustee filing to the sale. The servicer can file only after 120 days of missed payments. See the Colorado foreclosure timeline, month by month.
Can I stop a foreclosure with a short sale?
Often, yes. FHA servicers review short sale requests while a foreclosure is pending. An approved short sale can postpone the Public Trustee sale. The earlier you start, the better your chances. Call or text 303-955-4220 before the sale date is close.
The Kenna Real Estate Group handles FHA and conventional short sales in Colorado. Our main site explains the process at short sale help.
Do I have to be behind on payments to qualify?
No. An FHA Pre-Foreclosure Sale needs a documented hardship, such as job loss, divorce, a medical issue or a job move. You can be current on payments when you apply. Staying current can also shorten your FHA waiting period afterward.
What happens to the house after each option?
After a short sale, a buyer you picked owns the home. After a deed in lieu, the home goes to the servicer and then often to HUD. After a foreclosure, the home sells at the Public Trustee auction. If no outside bidder wins, the servicer conveys it to HUD.
HUD’s asset manager in Colorado, Raine and Company, then lists it on the HUD Home Store. It shows up in our Colorado HUD homes for sale and in the Colorado HUD inventory report. Owner-occupant buyers get a 15-day exclusive bidding window on insured homes. The HUD listing broker page explains how that works.
Which one should I choose?
- Choose a short sale if the home can sell, you want relocation money and you want to buy again soon.
- Choose a deed in lieu if the home has not sold, the title is clean and you need a clean exit.
- Let it go to foreclosure only if neither of the other two is available. It hurts your credit the most and pays you nothing.
A HUD-registered broker at the Kenna Real Estate Group can price the home, request servicer approval and handle the paperwork. Most short sale costs are paid by the sale, not by the owner. Talk to one of our HUD agents.
Frequently asked questions
Is a short sale better than foreclosure for an FHA borrower?
Usually yes. An FHA short sale can pay up to $3,000 to move. It releases the FHA debt. It can also mean no wait for a new FHA loan if you were current before the sale.
Is a deed in lieu better than foreclosure?
Yes, in most cases. It ends the FHA debt without an auction. It can come with a cash payment to help you move. It also shortens the conventional-loan wait from 7 years to 4.
How long after an FHA short sale can I buy again?
The wait is 3 years for a new FHA loan. It can be zero if every payment was on time before the sale. The wait is 4 years for a Fannie Mae conventional loan.
Can a Colorado lender come after me for the balance after foreclosure?
Yes. A Colorado lender can seek a deficiency judgment after a foreclosure. Approved FHA short sales and deeds in lieu release the FHA first-mortgage balance. Second liens need their own written release.
Who pays for a short sale in Colorado?
Commissions and normal closing costs come out of the sale proceeds. The servicer approves those costs. The owner usually brings no money to closing.
Call or text 303-955-4220. A live person answers.
Where to go next
- FHA short sale in Colorado: the Pre-Foreclosure Sale program
- FHA loss mitigation before a home becomes a HUD home
- Colorado foreclosure timeline, month by month
- VA compromise sale in Colorado
- HUD home FAQs
- How to buy a HUD home
Written and reviewed by
Brian Lee Burke, Colorado HUD home specialist and team leader
Licensed Colorado real estate professional since 2003 · REALTOR® · Team leader and licensed broker of the Kenna Real Estate Group at Keller Williams DTC, a group that regularly bids on HUD homes through Keller Williams Realty DTC, LLC, a HUD-registered brokerage · Author of The Real Estate Playbook and Mastering Real Estate. Brian’s full HUD biography.
Last reviewed: October 23, 2026 · Sources: HUD Home Store (hudhomestore.gov) and HUD program guidance, HUD Handbook 4000.1, REcolorado MLS data via kennarealestate.com, and the Kenna Real Estate Group’s own HUD transaction files.
Contact: call or text 303-955-4220 or homes@kennarealestate.com. During office hours you reach a live local Kenna real estate professional, not a robot or a national call center. Brokerage: Keller Williams Realty DTC, LLC (the Kenna Real Estate Group is a group of brokers there), 6300 S Syracuse Way, Suite 150, Centennial, CO 80111. Each Keller Williams office is independently owned and operated. The Kenna Real Estate Group is an independent real estate team and is not affiliated with or endorsed by HUD or any government agency; official property information comes from HUD Home Store. Equal Housing Opportunity.
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