Difference Between Short Sale and Foreclosure

The major key difference is that foreclosure initiates as soon as a loan defaults. For a short sale to initiate, when a borrower owes more than the market value of the mortgaged property and the lender agrees for the same.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Short Sale vs Foreclosure (wallstreetmojo.com)

  • A short mortgage sale can be defined as the sale of a property by the borrower who has become financially distressed for less than the outstanding balance due to the mortgage, where the lender will use the proceeds from the sale of the asset to repay the same. The lender will then accept the less than full repayment of the mortgage loan (and the borrower will be released from the mortgage obligation), the reason for the same being, to avoid what would amount to larger losses for the creditor or the lender, had it been to foreclose on that mortgage loan.Foreclosure, on the other hand, is the legal process in which a lender will take control of the mortgaged property, also evicts the borrower or say the homeowner, and will sell the mortgaged property after the borrower or the homeowner is not able to make full principal and interest on those principal payments on their mortgage loan, that was stipulated in the mortgage deed or the contract.

Short Sale vs Foreclosure Infographics

Let’s see the top differences between short sales vs foreclosure.

Key Differences

The key differences are as follows –

  • The lender or the creditor initiates foreclosure, whereas the borrower or the owner initiates the short sale.Short sales may or may not be reported on future loan applications, whereas in foreclosureForeclosureForeclosure refers to the legal action taken by the lender when the borrower fails to repay the amount due against the mortgage loan. The lender can take the possession of mortgaged asset or property or resale it to a third party for recovering the default loan amount.read more, it has to be reported on future loans.In the short sales process, it involves fewer legal fees and penalties when compared with foreclosure.The negative impact on the borrower’s or the owner’s credit score is typically smaller in short sales when compared to a foreclosure.Further, a short sale process usually involves a lot of paperwork for all the concerned parties compared to a foreclosure.

Short Sale vs Foreclosure Comparative Table

Conclusion

A foreclosure usually occurs when the borrower or the homeowner is behind the payments schedule on the mortgage loan that was used to purchase the mortgaged property. Foreclosure is something that no borrower or homeowner wants to experience the same. In most cases, the lack of payments on a housing loan is usually due to an unexpected dip in their finances or a change in the borrower or the owner’s circumstances.

However, there are some benefits for a short sale that if done rightly, it may not do as much damage to the owner’s credit score as the foreclosure would. Because of this, the borrowers won’t have to wait as long to buy another house as they would have if they had gone through the foreclosure process.

This has been a guide to the Short Sale vs Foreclosure. Here we discuss the top 6 differences between them and infographics and a comparative table. You may also have a look at the following articles –

  • Mortgage Payment CalculatorUse Mortgage Calculator in ExcelShort Sale of StockMortgage APR vs Interest RateLending vs Borrowing