How Short Sale Differs From Foreclosure?

[shirley037]

I've read about people opting for short sale when facing foreclosure. Others say short sale is better than foreclosure. Would really appreciate if someone could enlighten me the difference between the two. I've found great resources like ReverseThatForeclosure.com that explains the other but I think it's better if anyone could share their views here as well..

thanks a lot!

[rfukata]

I am not an expert on this but here is my take; (others may know or explain better)

- short sale; basically you walk away from your existing house/mortgage. (of course you advise your creditor/bank)

consequence; you lose your house, downpayment, credit rating and any investment you have made to your house/property.

- forclose; basically you go through a process like bankruptcy, the creditor will list the house and pay off all debts and if you

are lucky, you may get some of your downpayment or investment back depending on sale profit.

[trogers]

Short sales can only happened when both parties agree to it.

Advantage for the defaulting party is that you will not be declared a bankrupt, though your credit rating will still be affected, but for a shorter duration. Advantage to the lender is a shorter time period to find a buyer for the property (no lengthy legal process) and lesser admin and legal cost.

[hhgz]

"Short sales can only happened when both parties agree to it."

Since all sales have two parties - buyer and seller - I assume you mean both the seller and the mortgage holder.

A foreclosed property has been returned to the lender. With a short sale (also referred to a "pre-foreclosure"), the property is still with the borrower.

Edited January 20, 2010 by hhgz

[trogers]

"Short sales can only happened when both parties agree to it."

Since all sales have two parties - buyer and seller - I assume you mean both the seller and the mortgage holder.

The two parties to the defaulted loan or mortgage -  the mortgagor (or whoever bought over the bad debt) and the mortgagee. Wanted to stress that the mortgagee cannot simply 'walk away from  the existing mortgage'.

Before foreclosure, the rights to the property still rest with the mortgagee and he can propose a short sales to the other side instead of they seeking foreclosure and beyond.

Edited January 20, 2010 by trogers

[flying]

A short sale is when the lender agrees to take less than what is owed...Hence the name ...Short Sale.

Basically in an upside down market where the amount owed is higher than the appraised value a bank may agree to go this route.

For instance ....A couple have a mortgage & it is 300k The house is now worth 250k due to market conditions.

The bank seeing they cannot make the payments agrees to sell short. They get their 250k & that is that.

Of course in the US most states are non-recourse...meaning the bank cannot then come after you for the difference of 50k

The bank accepts this short sale in lieu of foreclosure mainly because foreclosure is never free or easy. The bank will have costs incurred in foreclosure & while they could try to get back those costs they know the couple is underwater & now have no hard asset so they settle....For the Short Sale. They also know that in court if the judge sees that they the bank loaned money to someone they knew was a bad risk the judge could say ....Well you knew this so now you wait a little longer & give these folks a chance.

A foreclosure is a pure default & the lender takes possession of the property.Foreclosures are NOT sold by Realtor's. Foreclosure properties are auctioned at a Trustee Sale at the Court House in the County where the property resides

Interesting side note...In a short sale the borrowers/home owners name is on the sale not the bank. In a foreclosure the home owners name is not on the auction.