Difference Between Short Sale vs Foreclosure
The following article provides an outline for Short Sale vs Foreclosure. A short sale is an investment method where an investor sells the borrowed security with the anticipation that the security price may fall and requires to return of an equal number of shares in the future. Whereas, the legal authority convicts foreclosure. The lender takes control of a property, expels the homeowner, and sells the home when a homeowner cannot pay full principal along with the interest amount on his or her mortgage as stipulated during the contract.
What is Short Sale?
A short sale is an event when the homeowner cannot repay the mortgage amount completely which they owe on it. The lender needs to agree upon selling the property less than the mortgage amount, and the lender or bank has to bear the loss or shorted. The lender has to either forgive the difference amount or need to settle down based on mutual consent where the borrower requires to pay the 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. The 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 short sale impacts less on the credit score than a foreclosure, it negatively marks the credit history. Any property sale credit company considers it to be “not paid as agreed,” impacting a credit score. Short sales, foreclosures, and deeds-in-lieu of foreclosure negate the person’s credit.
What is Foreclosure?
Foreclosure is a civil lawsuit in which the mortgagee has a right to terminate the mortgagor’s interest in the property through a court order. In this process, the court fixes the deadline on which the borrower is allowed to pay the debt and the foreclosure expenses and redeem the property.
Foreclosure is quite a tedious and more complex process. The lender must have complete and accurate paperwork and other supporting documents that help him 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 that add 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 Short Sale vs Foreclosure (Infographics)
Below is the top 6 difference between Short Sale vs Foreclosure
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Key Differences between Short Sale vs Foreclosure
The most significant differences between Short Sale vs Foreclosure are given below:
- The 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 mortgage’s balance.
- 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 cannot pay their monthly payment due to Laid off, quit the job, health issues, maintenance issues, job transfer, and many other circumstances. As opposed to the short sale, the owner defaults in payment when the property’s value falls below the value of the mortgage which he owes and the lender allows him/ her for sale.
- The foreclosure severely impacts the credit history of the borrower. 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 short sale is initiated by the borrower with the consent of the lender.
The lender takes possession of the mortgaged property in the foreclosure. while in a short sale, the mortgagor has control over it.
Short Sale vs Foreclosure Comparison Table
Let’s look at the top 6 Comparisons between Short Sale vs Foreclosure:
| Basis of Comparison |
Short Sale |
Foreclosure |
| Meaning | When the owner sells their property at a price lower than the mortgage amount, which is remaining due for the payment, it is known as a short sale. | It is a quite tedious process in which the property owner cannot pay monthly dues and defaults in making payment, lender reserves 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, Short sale, or pre-foreclosure. |
| Used | The property owner is unable to pay the mortgage amount, and the worth of the property falls under the mortgage amount he owes, and the lending institution allows for selling. | When the owner cannot pay monthly dues due to Laid off, quit the job, health issues, maintenance issues, 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. | The mortgagee takes control in his hand. |
Conclusion
The most remarkable thing between these processes is that foreclosure is convicted under legal clauses, which may lead to the forced sale that is conveyed earlier in the mortgage’s preliminary process. But the short sale is voluntary in the consent of the lender. Each process has its own characteristics; neither we can say good or bad either of them. However, the preferable one is better to go with the short sale, which requires ample time and paperwork to process but is more convenient for both the lender and owner.
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