What’s the difference between foreclosure and a short sale?

It doesn’t matter if you are a buyer or a borrower / seller, there are both advantages and disadvantage associated with a short sale and foreclosure.

What Is A Foreclosure?

The dictionary definition of a foreclosure in Pensacola Florida, or anywhere else for that matter is “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source).  This means ‘if you stop making your house payments, your lender has the right to foreclose on your property so they can attempt to recoup their money that was lent to you.’ 

There can be quite a number of reasons that might lead to foreclosure; however the most typical reason is when a borrower fails to make mortgage payments. In this case, the lending institution assumes ownership and possession of the property, and thereby evicting the borrower from the property; which are then sold at auction or utilizing the service of real estate agents. Remember, a foreclosure can damage the credit rating of a borrower, and that makes it very difficult to obtain a mortgage for many years.

Now, a foreclosure can work in different ways depending on the state that you live in. Check out the foreclosure process information over here at the HUD Government website.

What Is A Short Sale?

Coming to a short sale, in this case the home is still owned by the borrower.

As per definition, “short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source:Wikipedia)

A short sale can be an option agreed upon by borrowers and lenders. However, in a short sale the home is sold for less than the outstanding balance of the mortgage. And, hence the unpaid balance (known as the deficiency) may or may not still be owed by the borrower.

A short sale is typically a time consuming process as a few different lending institutions may own the mortgage. Not just that all the parties who have a stake in the property must agree to the terms of the sale. The potential deal could fall through if even one lender doesn’t agree.

Which one should you choose – foreclosure or short sale?

A short sale often has less of an impact on the creditworthiness of the borrower, when compared with a foreclosure. A foreclosure could impact a borrower’s credit score by 300 or more points, and a short sale may only dent the credit score by 100 points.

In fact, borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage. At the same time, a short sale borrower can purchase immediately.

A fact worth knowing is that folks are having a hard time making monthly mortgage payments, still revering from the crash in economy in 2008 in America. Choosing between being foreclosed and initiating a short sale (or a 3rd option…selling your Pensacola house fast )  is an easy choice for a borrower having troubles paying their mortgage on time.

Lenders are willing to work with borrowers to complete a short sale and to avoid the fees and time consuming process of conducting a foreclosure, sometimes.

But, this is what we have to say –


  1. It is always a good idea to talk with your lender and discuss ways that they can work with you on your loan. We can guide you in the right direction if you run into issues with your lender… just reach out to us on our and we’ll discuss your situation.

  2. Also, attempt a short sale or other program your lender may have. This might forgive part of your loan; create a new / more affordable monthly payment so you can get back on your feet, and many other related benefits.

  3. And, in case bank isn’t willing to work with you very much, the best option for you may be to sell your house. You can work with a local real estate house buyer service like Honolua Homes to sell your house fast for an all-cash offer.

P.S. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>

  1. Foreclosure. This comes as the last resort or the so called worst possible scenario. It’ll harm your credit; you could still be left with money owed to the bank even after the foreclosure is finished; and plenty of other adversities associated with it.

Now, you may be able to dodge a significant impact to your credit score but only if you know your options.

Remember, a foreclosure on your credit report makes that possibility extremely difficult for 5-7 years. So, if you have the opportunity, a short sale can be the better option!


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