SHORT SALE AND FORECLOSURE: HOW ARE THEY DIFFERENT?

As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they’re pretty different, with varying timelines and financial impacts on the homeowner. Here’s a brief overview.

1.  Short sale: A short sale comes into play when a homeowner needs to sell their home, but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than owed, freeing the homeowner from the financial predicament. On the buyer side, short sales typically take three to four months to complete, and many of the closing and repair costs are shifted from the seller to the lender.
2.  Foreclosure: A foreclosure occurs when a homeowner can no longer make payments on their home, so the bank begins repossessing it. A foreclosure usually moves faster than a short sale and is more financially damaging to the homeowner. After foreclosure, the bank can sell the home in a foreclosure auction. For buyers, foreclosures are riskier than short sales because homes are often bought sight unseen, with no inspection or warranty.