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Generally, a short sale is better BECAUSE you can avoid the foreclosure process, having a foreclosure listed on your credit report, etc. But, because California doesn't allow deficiency judgments against borrowers, it's not quite as advantageous to go the short sale route as it is to go through a foreclosure.
If you lived in a state where deficiency judgments were allowed (allows lender to sue borrower for the difference between the loan amount and the amount recovered through foreclosure), then a short sale would be the best choice without a doubt because a lender gives up its right to seek a deficiency if this option is taken.
In any event, a short sale is still usually better because it causes less damage to your credit.
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