What's the Difference Between a Short Sale and a Foreclosure?

What's the Difference Between a Short Sale and a Foreclosure?

  • Susan Solliday
  • 06/17/23

If you can’t keep up with your mortgage payments because of a job loss or some other type of financial hardship, you might choose a short sale or find yourself facing foreclosure. In either case, you will lose your house, but it’s important to understand the differences between these two processes and how they can affect your chance of buying another home in the future.

What Is a Short Sale?
A short sale is a voluntary process that you can initiate if you can’t afford your mortgage payments or if you want to sell your house, but its current market value is less than your loan balance. You can explain to the lender how your financial circumstances have changed, provide documentation, and request a short sale. 

If the lender approves your request, your home will be sold for less than the amount you owe on your mortgage. The lender might pursue a deficiency judgment to get you to cover some or all the difference, or it might simply accept the loss. Some states allow deficiency judgments, while others don’t. 

Your lender might not approve your request for a short sale. If the institution believes that there is another way to get the money it’s owed, such as collecting payments from a cosigner, it can pursue that option instead. The lender might also deny your request for a short sale if it believes it could get more money by going through the foreclosure process.

How Does Foreclosure Work?
Foreclosure is an involuntary process that a lender can initiate if you miss a certain number of mortgage payments. The lender can sell your house or auction it off, and if you’re still living there, you can be evicted. The lender will have to follow rules and a timeline set by state laws. 

How Long Do a Short Sale and Foreclosure Take?
The short sale process can be lengthy and tends to involve a lot of paperwork. The period leading up to foreclosure can also be long, but once a lender takes control of a property, it generally sells it quickly. 

Can You Buy Another House after a Short Sale or Foreclosure?
A short sale can affect your credit, but in most cases, it’s not devastating. Many homeowners who have gone through a short sale buy another house again in a relatively short amount of time.

A foreclosure can cause long-term damage to your credit. Since a foreclosure will stay on your credit report for seven years, you won’t be able to purchase another home anytime soon.


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