Due to unfortunate circumstances often out of the homeowner’s control, you fall behind on mortgage payments and must face the possibility of losing your home.
Two options that are often interchangeable but quite different are the terms short sales and foreclosures.
A short sale is a sale of real estate in which the net proceeds from selling the property will not equal or exceed the debts secured by liens against the property.
In the cases of a short sale, all lien holders (1st and 2nd lien) will have to agree to a lower collection of the debt in order to complete the sale of the subject property.
Keep in mind that all short sales must be approved by the mortgagee usually a bank before a short sale can be processed.
Pros and Cons Of a Short Sale.
Pros: Avoids foreclosure, less credit impact compared to foreclosure, could purchase a new home in 2 years, and eliminate your mortgage debt.
Cons: Significant derogatory credit event reported to the credit bureau, the bank can file a deficiency judgment against you and pursue you for the outstanding balance, unable to purchase a home for 2 years, and you will lose your home.
In contrast, however similar a foreclosure is the actions of taking possession of a mortgaged property when the mortgagor fails to keep up the mortgage payments.
Foreclosure begins when the borrower stops making payments and the loan becomes delinquent.
The default status continues for 90 days. Subsequently, the lender will file a notice of foreclosure, this process usually takes 120 to 360 days to complete.
If the house is foreclosed, it will be sold at auction to the highest bidder.
Pros and Cons Of a Foreclosure
Pros: A new start, unload a home that’s a financial burden on your family.
Cons: Significant derogatory credit event reported to the credit bureaus, the possibility of not being able to purchase a home for 5 to 7 years, ruins your credibility with creditors, and significant fees associated with foreclosure proceedings.