Foreclosures and short sales are almost the same because both are options when you are behind mortgage payments. Still, there is a minor difference that you need to understand before deciding between foreclosure and short sale.
Short sales mean when you are behind your mortgage payments. This is the personal choice to offer a quick sale to a lender. In a short sale, if you heard a good experience with paying your installments, a lender can give you some compensation, or he can extend your time limit for paying the remaining amount.
Foreclosure is also a situation in which you are behind your mortgage payments. But in this case, the lender takes legal action against you to take power office property. A lender can mortgage the property or can put that property on auction. In the case of a foreclosure, it will affect your tax return, credit score, and credit report. It can also create problems for you in the future and prospects of getting a loan.
Benefits of a Short Sale over Foreclosure
When someone takes a loan or sign a new house, He never thinks about short sales or foreclosure. But these days, due to this pandemic, many people face difficulties with their financial situation due to which several people are behind their payment installments and mortgage. Still, a short sale is far better than foreclosure in many ways, which I will describe in the following points.
1. Mental satisfaction
Indicates of short sale borrower prepare himself mentally for selling the house to the Lender. In this way, a short sale is less stressful than foreclosure. You are prepared to shift your home and about the dates to leave the house. On the other hand, foreclosure is a legal process, and you’re not sure when you will leave the house and in which circumstances.
2. A Short Sale can Protect your Credit
If we talk about the Lender’s point of view, it is better to recover a portion of the mortgage rather than a total loss. Many homeowners ask this question that either the short sale process, I will sue you for deficiency judgment as after foreclosure.
In the case of short sale bank, so you to recover its amount difference in loan, and the bank can file a lawsuit against the homeowner. But this process is not as long as a foreclosure. It will help you to protect your credit.
3. Short Sales help you to Save your Money
Mortgage lenders do not always file for judgment deficiency in a foreclosure case. Sometimes if your Lender has a likelihood with you and all parties are agreed on a short sale, then a new buyer with better financial state goodbye to that property and give you benefit over that. A fast deal also helps you reduce the number of money banks want to take from the homeowner. In this way, you can save your money.
On the other hand, foreclosure has $7500 as a legal cost. Some additional costs accumulate a higher amount which can lead to you towards bankruptcy if you cannot afford that payment. To save yourself from all this financial difficulty, choosing a short sale over foreclosure is better.
4. A Short Sale can help your Lender
When a house lender takes legal action against you, it hurts him. He also faced additional costs when he sent you multiple notices and warnings to rouse the house. He met the cost of legal filing hearing and associated documentation. This whole process is expensive and time-consuming. After taking the property back and selling, you need to sue another case to get the additional amount back. In this way, his profit our loss recovery have gone into legal processes.
On the other hand, in a short sale, he will recover a portion of his money by owning that property. So, in the short sale, he can reduce his loss without extensive legal processes of foreclosure.
5. The Short Sale presents Opportunities for Agents
A short sale is less complicated than foreclosure, but it still requires a homeowner to get through many steps to complete the procedure than a traditional home sale. Short closure is a good option for real estate agents who take time to understand the whole process. A short sale can also be a source of business in small areas or the still slow housing market.
6. A Short Sale is Beneficial for Investors
A short sale is a good option for a homeowner who is behind the installment of his mortgage. It is also beneficial for the investors because they purchase a property at a below-market rate and sell that according to the market rate. This is how they make money in such deals.
It is also easy for the investors to get easy access to information about the house. After purchasing it from a short sale, it is also easy to sell the house. Sometimes investors buy their property and give that back to the house owner on rent.
7. A Short Sale gives Homeowners more Control
Once you face a financial crisis and are behind your payments, the ball will start rolling towards foreclosure or short sale. You will get several documents, emails, and demand letters with legal terms and conditions.
In short sales, there is an opportunity for negotiation meetings and paperwork. This process feels like an average selling strategy, but you are forced to do all the legalities under stress and pressure in foreclosure.
8. Short Sale helps the Seller Avoid Scams
As foreclosure and short sale are involved in legal processes and documentation, it is doubtful to get scams in this case. But you still need to be alert from the people who offer a money-back guarantee with catchy slogans and promises to save your house from foreclosure.
So, foreclosure helps you to save yourself from scam artists. The short sale process is much like an average selling strategy, and the house owner will get to know the professionals with whom he is working. In this way, you will be protected from scam artists.