Difference between Foreclosure And Short Sale

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Difference between Foreclosure And Short Sale: Foreclosure and short sale. They are two terms both in reference to that sad episode when it comes to a real estate mortgage – the loss of assets on the part of both borrower and lender.

The borrower loses his mortgaged property while the lender loses the exact principal amount he lent to the borrower.

Either of these cases can happen when the borrower has repeatedly failed in paying his loan; the property being the collateral of the said loan.

What is the difference between foreclosure and short sale?

What is Foreclosure

A foreclosure is based on the lender’s right to act against a delinquent borrower. As a last resort, he moves to seize the property of the borrower by reason of the constant non-payment of the loan of the latter.

This is a recognized legal remedy on the part of the lender.

foreclosure is actually initiated by the lender himself.

It would be absurd for a homeowner to institute his own foreclosure action. Such foreclosure is the homeowner has left or abandoned the property.

The lender then does an appraisal on the whole property and puts it up for sale. He can also auction it off at a trustee sale.

This bidding held in public over the property.

As to processing period, it is easily transacted within a short span of time.

This is so because the lender still has to liquidate his assets immediately.

Difference between Foreclosure And Short Sale
Difference between Foreclosure And Short Sale

What is Short Sale

Meanwhile, a short sale is based on the borrower’s ownership right to his property. Due to insufficiency of funds for loan payment, the borrower resorts to sell his property for less than the balance remaining in the mortgage.

Say you have a remaining mortgage balance of $150,000. It happens when you decide to sell the property for $100,000

This is initiated by the borrower himself upon coming to an agreement with the lender.

The lender has to agree in the sense that he has to sign the borrower’s express decision to execute the short sale.

Afterwards, the buyer negotiates with the borrower and then with lender for purchase approval.

This transaction can run for quite a long time. But regardless, it is a good option on the part of the borrower.

After all, it is better to have a short sale reflected on the credit rating rather than a foreclosure.


Difference between Foreclosure And Short Sale

For a better understanding, let us simplify the difference between foreclosure and short sale. In any case, the reason behind these episodes is the habitual non-payment by the borrower of his loan.

Because of such reason, it is either that the lender himself takes legal action to seize and sell the property (foreclosure) or the borrower himself is forced to make a deal out of his property (short sale).

But the reason could vary in each situation that could result into either a short sale or a foreclosure.

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