The Difference Between Short Sales and Foreclosures

There are a few major differences between short sales and foreclosures. Here is what you need to know about each term.

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Whether you’re a home buyer or a seller, it’s important to know the difference between a short sale and a foreclosure. Today, I’d like to break both terms down for you.

A foreclosure is a term used to refer to a home that has been seized by a lender after the homeowner has failed to make full principal and interest payments on their mortgage. This allows the lender to seize the property, evict the homeowner and sell the home as stipulated in the mortgage contract.

Short sales are different from foreclosures. A homeowner, is considered “short” when the borrower owes more on their property when combined with closing costs and commission, than the property is worth in the current market.  A short sale may allow eligible borrowers to sell their home for less than the amount owed on the first mortgage. In doing so, the borrower may be released from their obligation to pay back the first mortgage under its original terms.

This sounds easy enough, but a short sale can be a complicated process. I’d recommend a listing agent who is a certified distressed property expert, as it can be very arduous to close a short sale.

A short sale can be a complicated process.

A short sale may allow a homeowner to avoid foreclosure, but it is not a “get out of my mortgage free" card. In reality, the homeowner must have their legitimate financial hardship approved by their lender in order to be released from the mortgage obligation. Acceptable hardships include loss of a job, death of a spouse, severe illness, divorce, mandatory job relocation or military PCS, or medical bills, to name a few.

If you’d like any more information on short sales versus foreclosures, simply give me a call or send me an email and we’ll send you our guide to short sales and foreclosures absolutely free. In the meantime, don’t hesitate to reach out to me with any other questions. I look forward to hearing from you!