Choosing Between A Foreclosure And Short Sale

Statistically, foreclosures and short sales have overwhelmed the housing market as homeowners anxiously look for ways to lessen their own financial hardships. As jobs are lost and hours are curbed, many people at a loss and question if the right strategy is to sell or surrender their home. The first thing to look at is the difference between a foreclosure and a short sale, including benefits and shortcomings for each.

The Logistics of a Foreclosure


A foreclosure results when a mortgage lender procures a court order. This court order ends the mortgagor's equitable right of redemption. This signifies that the borrower has defaulted on their loan and has lost the ability to pay the outstanding debt to the lender. The mortgagor's house has been repossessed by the lender, and the borrower will have to leave the house when the home is sold. On the other hand, some states allow borrowers from four months to a year to stay in their foreclosed homes rent-free. Unfortunately, this has been the story of thousands of Americans, who in the last couple of years, have missed payments and endure the painful task of waiting for their home to be sold before they move.

If you are a person who is experiencing trouble paying your mortgage, before letting your home go into foreclosure, bear in mind whether your financial predicament is temporary. In that case, you may be able to refinance your mortgage to your advantage, enabling you to keep your home.

How Short Sales Operate

If your mortgage holder decides to cut its losses, it may agree to a discount on a mortgage to avoid a foreclosure. This process can only be successful when the person and lending institution work together to sell the home. Some lenders will decline a short sale, which makes it necessary to hire either a lawyer or a realtor to assist you. Additionally, if you have cash assets, the lender may take those assets in payment for the defaulted loan. A short sale does not guarantee that your house will not fall into foreclosure but may be the best alternative to paying off some of your mortgage. With a short sale, if you owe $500,000 on your mortgage and you negotiate with the lender to allow them $430,000 from the sale of the home, then if the lender consents to this proposal you can walk away from the home. But why would the lender choose to lose $70,000? At this point, a lender only wants to recover as much of its money as it can and not become responsible for the maintenance of a home.

Your Credit After Foreclosure or Short Sale

It may shock and dishearten you that your credit score will be affected by a foreclosure and a short sale badly. Nevertheless, the time that it takes for a lender to lend you money for a new home is significantly less when you decide in a short sale. A homeowner who has suffered a foreclosure will have to wait up to 24 to 75 months to be able to take out another loan. Conversely, a homeowner who has gone through the short sale process will only have to wait 18 to 27 months.

In brief, it is best to examine the details of your financial crisis before choosing such a critical decision and talk to a real estate agent experienced in short sales will help you make the right choice.

By: Lee Bell

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