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Short Sale vs Foreclosure

A short sale is an alternative to foreclosure if you have fallen behind on payments on your home. In the instance of a short sale the lender allows the home to be sold for less than what is owed on the mortgage. This is because it is usually less of a loss for the lender to allow a short sale than to let the home go into foreclosure. Foreclosure is when the lender repossesses the home due to failure to pay the mortgage. The lender often stands to lose even more money in providing for the upkeep of the home on a monthly basis and paying the taxes in a foreclosure situation. Another benefit of a short sale is that it is usually less damaging to the credit of the seller as compared to a foreclosure. A seller should try to negotiate with the lender to minimize damage to their credit rating as part of the sale agreement.

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To be eligible for a short sale, the seller must be behind on payments due to financial hardship. Proof of this hardship must be established by supplying tax returns, pay stubs, bank statements and list of monthly expenses. A short sale is not likely to occur if the seller is already in bankruptcy as a short sale is considered a prohibited collection activity. The short sale process can move quickly if it is pre-approved by the lender for a certain amount. It is a good idea to work with a real estate agent or attorney to help negotiate the short sale process between the lender and potential buyer and ensure a timely sale. The short sale process can become complicated if there is more than one lender. Second mortgages or home equity lines can muddy the short sale process especially since secondary lenders stand to take the biggest loss on a short sale and all the lenders need to be in agreement with the terms for sale.

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