How bad is it?

Short Sale vs. Foreclosure

Quite simply, short sales and foreclosures are two financial options available to homeowners who are behind on their mortgage payments, have a home that is underwater, or both. In both cases, the owner is forced to part with the home, but the timeline and consequences are different in each situation.

A foreclosure is the act of the lender seizing the home after the borrower fails to make payments. Foreclosure is the last option for the lender. Unlike a short sale, foreclosures are initiated by lenders only. The lender moves against the delinquent borrower to force the sale of a home, hoping to make good on its initial investment of the mortgage. Also, unlike most short sales, many foreclosures take place when the homeowner has abandoned the home. If the occupants have not yet left the home, they are evicted by the lender in the foreclosure process.

A homeowner who has gone through a short sale may, with certain restrictions, be eligible to purchase another home (almost) immediately. Depending on the circumstances, homeowners who experience foreclosure can expect to wait two to seven years to purchase another home. A foreclosure is kept on a person’s credit report for seven years (or possibly more).

While a foreclosure essentially lets you walk away from your home—with grave consequences for your financial future, such as having to declare bankruptcy and destroying your credit—completing a short sale is labor-intensive. However, the payoff for the extra work involved in a short sale may be worth it.

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Be sure to talk to us before you make a decision.