What’s the difference between a foreclosure & a short sale?
Oct 19, 2009 in
Financial and Loan Tips
Chrystal M
My sister & her husband have finally decided they cannot afford their house. The mortgage company is giving them 45 days to come up with a lot of money or they will begin foreclosure.
My sister & her husband have finally decided they cannot afford their house. The mortgage company is giving them 45 days to come up with a lot of money or they will begin foreclosure.
A friend of ours mentioned selling the house in a “short sale” but none of us have ever heard of this. What is a “short sale” and how is it different than a foreclosure?
Does that mean you come out OWING money at closing when you sell or does it mean you need to sell ASAP?
So are they viewed differently on their credit or are they still viewed as defaulting on their home loan?
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5 comments
$andman on October 21, 2009 at 11:14 pm
selling for less than what is owed,in order to sell quickly in a buyers market…
Angie on October 22, 2009 at 5:28 am
Here’s a short sale: You owe $100,000 on a house. You want to sell, but can only get $80,000 for the house. You ask your lender to accept the $80,000 as payment in full for the loan. If they agree, that’s known as a short sale. If they do not agree, you need to either keep the house or come up with $20,000 to pay off the remainder of the loan.
A foreclosure is way worse, they take the ownership of the property away from you. It also has a very negative impact on your credit rating.
Unfortunately, in your sister’s case, if the loan is in such as state as the bank is starting their foreclosure procedures, it is probably too late for a short sale. They want their money or the property.
ebosgramma on October 22, 2009 at 7:23 am
Short sale is viewed as “paid in full” because the lender has agreed to accept the sale price as “paid in full”.
Short sale benefits both lender and seller. Seller’s credit is “saved” and lender gets most of their money back without having to go through the very expensive foreclosure process and deal with auctioning he property where they may actually get less than the amount of the short sale. Your best bet is to try to work with the lender. It is not too late for a short sale until the foreclosure has actually happened.
frankie b on October 23, 2009 at 8:00 am
People have explained it pretty well, but they forgot to mention a couple of things. When you do a short sale and sell the home for less then owed, the lender is agreeing to “eat” that loss. Meaning they will not come after you for repayment. Now if they foreclose, and the bank can only sell your home at the same loss you could of, they will come after you. So in a short sale if they lose 20k, they will wash it away. If they foreclose and lose 20k, they will slap you with a deficiency judgment, and it will be a lien on your credit.
Tamara on October 25, 2009 at 10:34 am
Hi,
Short sale is when the bank agrees to take less than the actual amount owed on a home when it is sold. Typically the home is listed for an amount lower than neighboring properties that are not short sales or foreclosures.
As far as credit is concerned both will hurt your credit, but a short sale is a better option. You will still pay higher interest and have a lower score with a short sale, but if employers (who use credit now as part of their decision making for hiring and for promotions) will most likely look on a short sale in a different light.
Since the bank has not started foreclosure, I would suggest your sister put her home up for sale with a short-sale specialist and let the bank know that. Either the Realtor or your sister should see if they can get assigned a short sale negotiator through their lender – they may not be able to do that until they have an actual offer in hand.
If you have any further questions you can email me. I am a Realtor in San Diego California – but can at least answer questions. I also spent about 20 years in the mortgage industry – including loss mitigation.
Thanks Tamara