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

short sale vs foreclosure

Whether you’re a buyer, borrower, or a seller, short sales and foreclosures each present different advantages and difficulties.

What Is A Foreclosure In College Station, TX?

Simply put, “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source). Once you fail to make your house payments, your lender, in a bid to recoup their money, can foreclose on your property.

When a borrower fails to make mortgage payments, the lender evicts the borrower and assumes ownership of the property. The property is then auctioned or sold traditionally by utilizing a real estate agent. The credit rating of a borrower can be harmed by foreclosure and this can make it exceptionally hard to obtain a mortgage for a long time.

A foreclosure can operate differently, depending on your state. Check out the foreclosure process information over here at the HUD Government website.

What Is A Short Sale?

In a short sale, the home is still owned by the borrower.

By definition,  “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)

In some cases, a short sale is settled upon by borrowers and lenders. In a short sale, the house is sold for less than what is owed. Depending on the situation, the borrower may or may not owe the unpaid balance (otherwise called deficiency)

This option can be time consuming, as the mortgage might be owned by different lending institutions  All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.

Short Sale vs. Foreclosure – Your Options

While each choice can have implications, a short sale frequently has less of an effect on the credit of the borrower. A foreclosure can impact a borrower’s credit score by around 300+ points, while a short sale may only affect the credit score by 100 points.

In some cases, a short sale borrower can purchase immediately, while a borrower who was foreclosed on cannot buy another home for another 5-7 years with a traditional mortgage. With the economy not fully recovered after the crash of 2008, many Americans struggle to make mortgage payments. When it comes down to choosing between a foreclosure, a short sale, or a third option (selling your College Station house fast), the choice is easy.

To avoid the fees and time-consuming process of conducting a foreclosure, lenders are sometimes willing to work with borrowers to complete a short sale.

Our suggestion is always this.

  1. Talk to your bank about ways they can work with you on your loan. If you run into any issues with your lender, we can offer you assistance that can help guide you in the right direction. Reach us out to us on our Contact page and we’ll discuss your situation.
  2. Attempt a short sale or other program your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
  3. Your best option might be to sell your house if the bank is unwilling to work with you. Work with a local real estate house buyer service like Texas Direct Home Buyers to sell your house fast for an all-cash offer. If you’re interested, we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
  4. Foreclosure. Your final resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit, and you could still owe money even after the foreclosure is finished.

Knowing your options can help you evade a huge impact to your credit score, allowing you to purchase a new home when your situation improves. Having a foreclosure on your credit makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale may be the better option.

Have a pending foreclosure?  We’d like to make you a fair all-cash offer on your house.

Give us a call anytime at (979) 431-1663 or
fill out the form on this website today! >>

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