July 21, 2022

What is the Difference Between a Foreclosure and a Short Sale?

If your financial situation prevents you from keeping your house, you may be looking at getting rid of the property. Two options are going through foreclosure or attempting a short sale. While neither option is favorable, you need to choose the best option based on your current situation. Before you decide which route to take, you need to understand the difference between a foreclosure and a short sale.

You also need to explore other alternatives that may help you avoid a short sale or foreclosure altogether. For instance, you can sell your house as-is for cash to a local home buyer in DFW, Texas. A cash sale can help you unload the property and save your credit at the same time. Below, we look at the difference between a foreclosure and a short sale and what you can do to avoid either.

What is Foreclosure?

Foreclosure occurs when you fail to pay your mortgage payments and the lender or mortgage investor must repossess the home. Foreclosure can also happen when you fail to pay your property taxes or homeowners association fees. During foreclosure, the mortgage lender may seize the property and sell it to recoup the money it lost from the mortgage default.

The lender can take back the home because a mortgage is a secured loan. That means you guarantee repayment by providing collateral. If they can't pay back the loan with money, they use the collateral instead. In the case of a mortgage, the home is used as collateral and, upon signing closing documents, you recognize that the lender has the right to foreclose on the home if they default on the loan. This is also known as putting a lien on the title of the home. Once the mortgage is paid off, this lien on the title of the home is removed.

What is a Short Sale?

A short sale in real estate is when you sell your property for less than the amount due on the mortgage. The buyer is a third party, and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against you, requiring you to pay the lender all or part of the difference between the sale price and the original value of the mortgage.

In some states like DFW, Texas, this difference must legally be forgiven in a short sale. Before a short sale can begin, the lender must sign off on the decision to execute a short sale, also known as a pre-foreclosure sale. Additionally, the lender needs documentation that explains why a short sale makes sense. No short sale may occur without lender approval.

Should You Choose a Short Sale Over a Foreclosure?

The easiest decision to make when facing losing your home is to throw your hands up and let the bank foreclose on the property. However, it's not always the smartest decision. A foreclosure can destroy your credit, making it difficult for you to get a loan. Plus, the bank may still hold you liable for any balance left over after the house sells at auction.

The main advantage of a short sale is that you're in control of the sale. Your home sale will be handled like any other home sale, and you may prefer being involved in the selling process and knowing who is buying your home. There is also a negative social stigma that comes with foreclosure. Many people find it embarrassing and want to avoid the process by any means.

Sell Your House for Cash in DFW, Texas

Do you live in DFW, Texas? If so, contact Fortune Homes today. Sell your house fast for cash in DFW, Texas and the surrounding area. We buy houses as-is in any condition. Call 817-881-1957 to schedule a quick, no-obligation visit with one of our local cash home buyers.

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