Short Sale vs. Foreclosure
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What Is a Short Sale?
A short sale is a home sale where the proceeds are less than the amount the homeowner has left to pay on the mortgage. Short sales are usually initiated if the homeowner is under pressure to complete a home sale as quickly as possible. No one really wants to sell their home and not receive a profit on the sale. But a short sale can occur for instance if the homeowner has defaulted on their mortgage and is facing a foreclosure proceeding.
Thus, short sales are often utilized as a foreclosure alternative. Some lenders might be willing to accept the short sale proceeds and to cancel or forgive the remaining payments on the mortgage. This may also help the borrower to avoid some of the extra costs associated with foreclosure.
What Are Some Differences Between Short Sales and Foreclosures?
A homeowner is often provided with a choice between undergoing foreclosure and conducting a short sale of the house. In order to understand which one would be more beneficial, it helps to review the different characteristics of each.
Some characteristics of short sales include:
- The homeowner conducts the sale and is in control of the property and the process until the sale is completed
- Short sales typically result in a better overall credit score than foreclosure
- The home sale is conducted through the normal public real estate market
- Short sales can sometimes be difficult to obtain—they may not always be available under state laws, and can take a very long time to process (short sale approval can often take anywhere from 2-3 months)
Some characteristics of foreclosures include:
- Foreclosures are initiated by the lender, and the lender is in control of the process, not the borrower
- Foreclosure can be devastating for one’s credit score
- The home foreclosure sale is usually accomplished through an auction, sometimes through a court-ordered judicial sale
Some anti-deficiency laws prevent lenders from reaching assets that weren’t put up as security for the loan (such as cars or other vehicles); this may effectively allow the borrower to "walk away" from a mortgage without having to pay any more (although it can have dramatically negative effects on credit)
How Do I Know Which One Is Right for Me?
The general consensus is that short sales are usually more preferable than a foreclosure proceeding. This is because with a short sale, the homeowner usually still has some control over the sale. Also, a short sale can be conducted even if the person has not defaulted on their mortgage. However as mentioned, a short sale may not always be an option.
In contrast, foreclosure is more like something that "happens to" a person, and is less of an actual option. In some cases, short sale lawsuits can arise over legal issues during the sales process, whereas foreclosure proceedings tend to be somewhat very straight forward because they can be mandatory in some cases.
Do I Need a Lawyer for Help with Short Sales or Foreclosures?
You should review all your possible options if you need to consider a short sale vs. foreclosure. You may need to hire a real estate lawyer for advice on your possible choices. A qualified attorney can help explain which options are available to you under the laws in your region. Also, if you need to be involved in any type of lawsuit, your attorney can provide you with representation during the court hearings.
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Last Modified: 08-03-2015 11:04 AM PDT
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