Foreclosure vs short sale is an emotionally tasking situation for homeowners to compare, but it’s worth considering. Both are payment relief options that a lender falls back to when you’re behind mortgage payments on your house. Still, there are minor differences that make short sale preferable to foreclosure. Let’s get to it.
Foreclosure Vs Short Sale
What A Short Sale Means
Short sales mean when you are behind your mortgage payments, but want to sell the house. All the proceeds from the sale goes to the lender, and they decide if you’ll pay the deficit in full or partly. For instance, if you have a mortgage balance of $200,000 on your house and you sell it for $175,000, the 25k difference is your deficit.
Also, approval of the short sale is reserved by your a lender — you can’t decide yourself. Most times, you’ll need to proof that you’re experience financial difficulties with your bank statement or pay stubs.
While short sale isn’t as detrimental to your credit rating as a foreclosure, it still puts a dent on it.
What A Foreclosure Means
Foreclosure is also a situation where your mortgage is underwater — higher balance than market value. However, unlike a short sale, the lender seizes the property, looking to sell it quickly. In other words, it’s a forceful eviction from the home.
Also, a foreclosure gravely affects your tax return, credit score, and credit report. You can rest assured a foreclosure stamp on your financial records will cause you problems when you try to finance any loan — except from a loan shark. A lender may re-mortgage the property or put it on auction. So, although times can be hard, avoid foreclosure like the plague, if you can.
Foreclosure Vs Short Sale: Why Short Is Preferable
When someone takes a loan on a new house, they never plan to be late with mortgage payments. Anyhow, the pandemic put many owners in a tough spot financially that the government had to declare a moratorium on foreclosures. With the temporary ban now, lifted it’s better to lose the house through a short sale. Here’s why.
1. Easier On Your Mental Health
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. Save Your Financial Health
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. Saves You More 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. 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. Suitable Position For 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. 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. Good Deal 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. Best Shot At A Chance To Start Over
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. Reduced Scam Exposure
Homeowners become desperate and liable to fall for scams when they’re involved in foreclosure or shot sale. Although foreclosure relief scams are more common, you should still be wary of anyone promising to put your head above water in a short sale.
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. Even so, these transactions are susceptible to other real estate scams, so always read emails and sites you enter carefully.