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Short Sale vs. Foreclosure

August 19, 2008

There is often some confusion on the difference between a short sale and a foreclosure. Here is a quick reference for you to better define these two terms.

In a nutshell, a short sale is when you must sell your home for less than what you owe on it. Typically a homeowner who is behind at least two payments and can show a lack of ability to pay the mortgage may qualify for a short sale, but the specific requirements are up to the bank that holds the mortgage.

Homeowners may find themselves in this situation due to the dropping prices of real estate, loans that are adjusting upward beyond their means to pay and many other situations including loss of a job. Unfortunately, most banks won’t talk to you until you “are in trouble”.

Foreclosures on the other hand, happen when the bank takes back the property from the homeowner because of their inability to pay the mortgage. There is a process involved that includes pre-foreclosure, that is, when the bank gives a notice of default (NOD) and takes legal steps to reclaim the property from the homeowner. Once the bank has taken back the property it is known as a Bank-Owned property or REO.

While neither of these situations is ideal, they are more and more the reality of today’s real estate landscape. As soon as you think you might have a problem, call your Realtor, Lender, Bank or attorney and get as much information as you can. You may be able to save your home, or at least, make informed decisions that can help reduce your loss and damage to your credit.

You can read more about this topic at http://rismedia.com/wp/2008-08-17/understanding-short-sales/ Although this article is intended for real estate professionsals, it may help answer some questions you have.

While there are many subtleties and different situations that more specifically define what action you need to take, I hope this article at least gives you a framework from which to act. Of course you can always contact Cecily directly about questions you may have. Her contact information is 1-800-783-7175 or CecilyT@pacbell.net

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3 Comments leave one →
  1. August 20, 2008 3:08 am

    Good post. While comparing both the options I personally feel short sale is better than foreclosure as I had read in an article that banks while evaluating a borrower who had a short sale or foreclosure in his past would probably give slight edge to the short sale.

  2. August 21, 2008 3:50 pm

    Short sales are a great way for homeowners to get out of a bad situation fast. They also provide great opportunities for buyers looking for a great deal.
    Jon Christopher of Short Sale Way

  3. John permalink
    August 21, 2008 11:09 pm

    In my situation, short sale or foreclosure? Bought a house 2 years ago and had been paying minimum amount (negative amortization)with plan to refinance in 2 years. This April, my payment has to be full amortization and I can’t afford, nor can I refinance or modify my loan. Been advised to just do straight foreclosure, I’m in CA, by the way. Should I?

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