Difference Between ShortSale vs Foreclosure
ShortSale
ShortSale is an event when the owner of the home is not able to repay the mortgage amount completely which they owe on it. The lender needs to agree upon the sell the property less than the mortgage amount and lender or bank has to bear the loss or shorted. The lender has to either forgive the difference amount or need to settle down on the basis of mutual consent where borrower requires to pay whole or part of the difference between the sale price and the original value of the mortgage.No short sale may occur without lender approval. In this article, we will discuss ShortSale vs Foreclosure.
Difference between the mortgage amount and the paid amount is known as a deficiency. However, it is quite a tedious process and takes a lot of time-consuming and paperwork. For its execution, require so many approvals.
Even Though a shortsale impacts less on the credit score than a foreclosure, which gives a negative mark on the credit history. Any type of property sale credit company considers it to be as “not paid as agreed” which impacts a credit score. Shortsales, foreclosures, and deeds-in-lieu of foreclosure negate the person’s credit.
A short sale is a method of investment where an investor sells the borrowed security with the anticipation that the price of the security may fall down and requires to return an equal number of shares in the future.
Foreclosure
Foreclosure is convicted by the legal authority in which lender takes control of a property, expelled the homeowner and sells the home when a homeowner is not able to pay full principal along with the interest amount on his or her mortgage, as stipulated during the contract.
Foreclosure is a civil lawsuit, in which mortgagee has a right to terminate the mortgagor’s interest in the property, through the court order. In this process, the court fixes the deadline on which borrower is allowed to pay the debt along with the foreclosure expenses and redeem the property.
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Foreclosure is a quite tedious and more complex process. The lender must have complete and accurate paperwork along with other supporting documents which help him to claim the title. Even though homeowners put their best efforts to win loan modifications and other help to rescue from this situation and stay in their homes. But there are other factors adds more complicacy such as financial and legal problems, bankruptcy and many more.
There are three types based on which the property lies in the foreclosure process those are elaborate in the three stages are as follows:
- Pre-Foreclosures
- Foreclosure Stage
- Post- Foreclosure
Major causes of Foreclosure:
- Laid-off, fired or quit the job.
- Inability to continue working due to medical conditions
- Maintenance issues they can longer afford
- Job transfer to another state.
- Squabbles with co-owner, divorce
Excessive debt and mounting bill obligations.
Head to Head Comparison between ShortSale vs Foreclosure (Infographics)
Below is the top 6 difference between ShortSale vs Foreclosure
Key Differences between ShortSale vs Foreclosure
The most significant differences between ShortSale vs Foreclosure are discussed below.
- Lender seizes the property of the borrower when he/she defaults in making monthly payments in foreclosure. In reverse, Short sales are the process in which the owner sells the property less than the amount remaining as the balance of the mortgage.
- FHA has lenient the conventional mortgage borrowers nationwide, now they can re-apply for a new loan just two years after the bankruptcy, short sale or pre-foreclosure.
- Foreclosure happens when an owner is unable to pay their monthly payment due to Laid off, quit the job, health issues, maintenance issue, job transfer, and many other circumstances. As opposed to the short sale, owner defaults in payment, when the value of the property falls below the value of the mortgage which he owes and lender allows him/ her for sale.
- The credit history of the borrower is severely impacted in the foreclosure. While in a short sale borrower is comparatively less impacted.
- In the foreclosure process, the lender takes the initiative and sale of the property. While in the shortsale is initiated by the borrower in the consent of the lender.
The lender takes the possession on the mortgaged property in the foreclosure.while in shortsale, mortgagor has control over it.
ShortSale vs Foreclosure Comparison Table
Let’s look at the top 6 Comparison between ShortSale vs Foreclosure
The Basis Comparison Between ShortSale vs Foreclosure |
Short Sales |
Foreclosure |
| Meaning | When the owner sells their property at a price lower than the mortgage amount which is remaining as due for the payment. It is known as a short sale. | It is a quite tedious process in which the owner of the property is not able to pay monthly dues and defaults in making payment, lender reserve the right to evict from the property. |
| New Mortgage | The waiting period of 2 years for the next financing after a short sale. | FHA has reduced the mandatory waiting period to make a mortgage application, can reapply for loan 2 years from bankruptcy, Shortsale or pre-foreclosure. |
| Used | Owner of the property is unable to pay the mortgage amount and the worth of the property falls under the mortgage amount which he owes and lending institution allows to sell. | When the owner is unable to pay monthly dues. Due to Laid off, quit the job, health issues, maintenance issue, job transfer, and many others. |
| Credit Score | Comparatively less affected than Foreclosure | Severely affected. |
| Initiated and sold by | Initiated and sold by the borrower in concern with the lender. | Evict by the lender forcefully. |
| Control over Property | The whole process governs under Mortgagor supervision. | Mortgagee takes control in his hand. |
Conclusion – ShortSale vs Foreclosure
The most remarkable thing between these process is that foreclosure is convicted under legal clauses, which may lead to the forced sale which is conveyed earlier in the preliminary process of the mortgage. But the shortsale is a voluntary sale in the consent of the lender. Each process has its own characteristics, neither we can say good or bad either of them. However, the most preferable one is better to go with the short sale which requires ample time and paperwork to process but it more convenient for both the lender and owner.
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