Foreclosure vs. Short Sale

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Difference between Foreclosure and Short Sale

For most people at the end of the home ownership line, foreclosure is an impending eventuality that is looked upon with a great deal of trepidation. While it would appear that this is the last course of action to take, another alternative to consider is a short sale. Both actions come about as a result of a serious situation that may end up in the loss of the home, but the short sale may be a much better option, as you will see below.

Short Sale


A foreclosure comes about when a homeowner fails to make his or her mortgage payments. A bank or other financial institution can then legally seize the property, and this lender has the option to sell off the property with no further obligation to the original homeowner. In a short sale on the other hand, the homeowner or borrower is in a similar situation of being unable to make the mortgage payments, and places the property on the market through a realtor. The lending institution then takes less than the full value of the home as payment of the loan. The primary difference is that the homeowner is still involved in the sale, and will actually have to approve the deal before it goes through.

A Home Afterwards

If you have to go through a short sale although you have otherwise had a good record of making mortgage payments, you may be able to buy a home immediately with the Fannie Mae loan plan. With a foreclosure on the other hand, you will have to wait anywhere from 5 to 7 years before you will be able to purchase a home.

Effects On Credit

Unlike a foreclosure, a short sale will not be considered a negative mark on your credit record. In fact, it won't even be mentioned as such, and will instead be marked down as a "pay as agreed" transaction. As for the foreclosure, you may experience a drop in your credit rating of as much as 200 to 400 points. Worse yet, this will be seen in your credit report for as long as 10 years, where any potential lender will be able to access the information.



  • The term used to refer to a lender taking possession of a property
  • Occurs when a homeowner fails to make mortgage payments
  • Less favorable alternative to a short sale
  • Homeowner is not a party to the sale of the property

Short Sale

  • The first step in the avoidance of foreclosure
  • Can be a complicated and time-consuming process in which the outcome isn't assured
  • Can take anywhere from 3 to 6 months
  • Homeowner is in still in control of the sale
  • Avoids the social stigma of foreclosure
  • Can be done even when you are up-to-date on your mortgage payments
  • Is handled just like any other home sale


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