Transfer of property to bank or foreclosure?

my grandma decided to short sale her house because she couldn’t pay it. When she started the short sale, she stopped paying. Now after 2 years the bank didn’t approve any of the offers. Now they are giving her 2 options foreclosure or transfer of property to the bank. Which one is better and which one will affect her credit less.

What should she do?

A deed in lieu of foreclosure is the best. Her credit report will showing something like "settled for less than the mortgage balance." If her banking is willing to accept a deed in lieu, make sure it contains language to the effect "grantee shall satisfy the mortgage for which this property is security" or something similar.

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