With nearly 1 in 10 mortgages in the country going into default the terms short sale and foreclosure have become very mainstream and acceptable. However, what I commonly find is that homeowners do not fully understand either of these terms. So, lets clarify.
What is a Short Sale?
Simply put, a Short Sale is used to describe the sale of a home in which the homeowner owes the bank more than the home is worth. The bank agrees to allow the home to be sold for less than what is owed (AKA "Short Sale").
Don't be fooled by the term though. Just because it says "short" sale, the process can be very exhausting and take months.
What is a Foreclosure?
Foreclosure is the legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan.
Also important to know; foreclosure is a process, not an event. The foreclosure process starts at the point where a mortgagee is 30 days behind on a payment, and can continue for man months depending on how backed up the banks are.
What to do?
The good news is that if you are upside down on your mortgage or falling behind you do have options. First- you need to contact a qualified real estate agent and discuss your options. Second- you need to call your mortgage company and inform them of what you intend to do with the home. The best thing you can to do is take action, the worst thing to do is avoid the situation.