Short Sale vs. Foreclosure: What’s the Difference?

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There are a few different scenarios for homeowners that are struggling to make their mortgage payments or are “underwater” on their homes (and owe more than what it’s worth)—including short sales and foreclosures.

But what, exactly, are short sales and foreclosures, and what’s the difference between them?

recent article from answered key questions people have about short sales and foreclosures, including:


Foreclosure Vs. Short Sale | PineCone Properties


  • What is a short sale? A short sale happens when a homeowner’s mortgage is higher than the market value or sale price of the home when they want to sell; in other words, they’re “short” on what they owe. In a short sale, the lender agrees to settle the debt for a lower amount than what’s due on the mortgage—and the home is then listed for sale through a real estate agent.


The Quintessential Beginner's Guide To Short Sales, Foreclosures & REOs


  • What is a foreclosure? A foreclosure happens when a homeowner is seriously past due on their mortgage payments (after three to six months of missed mortgage payments, the lender issues a Notice of Default, which begins the foreclosure process). If they’re unable to settle their loan debt, either through a short sale or by paying off the mortgage balance in full, the lender is then able to either sell the property to a third party through an auction, or take ownership of the property.


What's New at Faith - Oakville in February 2015


  • What’s the difference between the two? There are a few key differences between short sales and foreclosures, including time frame (short sales can take up to a year to close, while foreclosures move much more quickly) and impact on the homeowner’s ability to buy another home (after a short sale, homeowners can generally purchase a home right away—while people who went through foreclosures will have to wait five years).



  • Buying a short sale? Be prepared for a longer than normal settlement.  Different lenders have different processes in place but major points are as follows:
    • Lender must verify that the seller needs to sell the property as a short sale
    • Lender will review the offers and also request a property appraisal - the lender normally accepts the greater of the offer amount and the appraisal value.
    • If multiple loans are involved, the subsidiary loans are normally paid very little to settle their outstanding balance
    • After offer is accepted, if buyer is financing the property, the loan process can start - depending on the type of financing, will determine the length of time to closing 
    • Buying a short sale CAN BE a good deal but can also result in headaches so make sure to perform your due diligence

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Comments (1)

Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Dec 01, 2022 04:49 AM