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Difference Between Foreclosure and Short Sale

foreclosure vs short sale
 
When a house owner defaults in the repayments of a mortgage, it can lead to foreclosure and short sale. As the banks or the financing institutions want their money back, your house or property may go for foreclosure or short sale. Though either of these are very unpleasant for a house owner, the lending firms may not have any other option. Foreclosures and short sales will adversely affect your credit score.

Foreclosure is a procedure by which the home or property is taken back by the lending institutions. Short sale is a procedure by which the owner can put the house for sale on his own.

When comparing the two, short sales are a better option than foreclosures. This is because the homeowners could get some time when they put their home for short sale for making alternative arrangements for closing their debt. Moreover, they can also avail government assistance for stopping foreclosures.

In foreclosure, the house owner is not party to the sale, whereas in short sale, the owner has all control over the sales.

Though a short sale is a better option, it is hard to get the lending firms agree to it. The banks and other lending institutions prefer foreclosures to short sales as they could sell the house at their own interest. In short sales, the house owner is the seller and he may even sell the house for less than the due amount.

After a foreclosure, a borrower can avail a new mortgage only after five years. But this also depends on the credit score. On the other hand, a borrower can avail new mortgage in two years time if the house has been put for short sale.

Now coming to buying foreclosed or short sale homes, it is easier to purchase a foreclosed property than a short sale home.

Summary

  1. Foreclosure is a procedure by which the home or property is taken back by the lending institutions. Short sale is a procedure by which the owner can put the house for sale on his own.
  2. After a foreclosure, a borrower can avail a new mortgage only after five years. On the other hand a borrower can avail new mortgage in two years time if the house has been put for short sale.
  3. In foreclosure, the house owner is not party to the sale, whereas in short sale, the owner has all control over the sales.
  4. It is easier to purchase a foreclosed property than a short sale home.


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