Short Sale vs. Foreclosure

What is the difference?

I often get questions from homeowners, what is the difference between a short sale and a foreclosure? They’re completely different. The Foreclosure is when the mortgage company decides to hire an attorney and file a lawsuit against you because you haven’t paid your mortgage for over 90 days. Banks wants the judge, who presides over the lawsuit, to give a judgment against the homeowner to the mortgage company. This allows an auction to take place where either the bank itself or an investor will be able to buy it at the courthouse. Mortgage bank will try to liquidate the property and get a portion of their money back that was invested in the mortgage.

A short sale is a negotiated settlement with your mortgage company. The short sale is where your listing agent lists the house for sale in the local Multiple Listing Service to get a buyer. Hopefully that’s us! We will negotiate to try to get the bank to allow the property to be sold for less than full pay off of the mortgage that is owed right now. For example: you owe $200K, the house is now worth a $150K. The bank accepts the offer to accept the short sale. The bank will pay your closing costs and will not come after you for the difference usually up to $50k. The bank writes the discount/deficiency off and forgives the debt.