If your home is underwater, you’re likely desperately searching for a way out while mitigating the damage to your finances and credit as much as possible. This can seem like an exhausting task, and it is, both emotionally and financially.
If you owe more on your home than what you can pay back to your mortgage lender with no foreseeable way to improve your ability to make payments in the future, this is all about damage reduction, and a short sale may be your best option for minimizing the blow. Foreclosure may not be the only answer, and understanding the difference between a short sale and a foreclosure may provide an invaluable solution.
Why a Short Sale Isn’t a Foreclosure
If you haven’t read our post on the basics of a short sale, it may help to read through that first.
The primary difference between a foreclosure and a short sale is that a foreclosure comes when a bank actively contacts the home owner and threatens to – and eventually proceeds to – repossess the home in order to exact payment on the deficit of a mortgage loan which the home owner has proven incapable of making good on. The bank then comes into ownership of the home and can resell it at market value as a foreclosed home. After that, the bank then has the right to try to get the previous homeowner to fulfill the loan deficiency, even though he or she was obviously unable to do so from the start of the foreclosure. Generally this results in bankruptcy on the homeowner’s part.
The Difference in Selling
Think of the difference in terms of selling and billing.
During a foreclosure, the bank repossesses the home and resells it themselves, leaving the previous homeowner with nothing, plus a bill.
During a short sale, the homeowner takes the role of seller, but owes more on the house than what it’s worth in the market, thus promising a deficit even in a successful sale. The seller then makes an arrangement with the bank, implying a mutual transaction rather than a forceful taking away. The seller walks away with nothing; that’s it.
Credit Differences
Foreclosures, it stands to reason, are much harder on credit scores than short sales. A short sale doesn’t come without penalty, but since a foreclosure is much harsher, involves no mutual agreement on the bank’s part, and often results in bankruptcy, foreclosure should be avoided at all costs if a short sale or other option is possible.
Seeking Help
If you’re staring down foreclosure, seek the help of a short sale expert today to see what your options are and if a short sale may be possible.
Bryce Emley wrote this article on behalf of the Short Sale Experts of Rothwell Gornt Homes, a Las Vegas based real estate company.
Deciding What’s Best For You: Short Sale vs. Foreclosure
