Do you know the difference between a short sale and foreclosure? Learn what you need to know today!

What is the Difference Between Short Sale and Foreclosure? |

What is the difference between a short sale and foreclosure? There are many reasons why you may find yourself in a position where you need to give up your home but don’t have the time or equity to sell. In these cases, you may be looking at options such as short sales and foreclosures. While both processes involve your home being taken back by the bank, working with a real estate professional can still be beneficial to help you determine your options and make an informed decision. 

Short Sales

A short sale is an agreement between a homeowner and their mortgage lender to transfer ownership of the property to another owner while giving the proceeds to the lender. This often happens when the homeowner owes more on the house than it is worth. Before the process can begin, the lender has to agree, in writing, to the short sale. Before they will agree, the lender will ask for documentation providing a reason why the short sale is necessary. This is to protect the lender since they often lose money through this process. 

Once the house is ready for sale, the lender has to approve the sale before it can be processed. The proceeds of the sale go to the lender, however, the owner may still be responsible for any remaining balance on their loan after the sale. The rest of the sale is still processed through a real estate professional just like any other sale. 


Foreclosures are not agreed upon between all parties but instead are initiated by the lender. This occurs when the owner of the property is delinquent on payments for a significant period of time, usually three to six months. When this happens, the lender essentially repossesses the property. This most commonly happens when the owners have abandoned a home. However, it can happen when the owners are still occupying the property in which case the lender will evict them. Foreclosures are usually processed quickly as legal action against the owner by the lender. 

The Difference

At a base level, the biggest difference between a short sale and a foreclosure is that a short sale is voluntary while a foreclosure is involuntary. However, there are a few other key differences. A short sale allows the owner to remain in good financial standing after the sale with no impact on their credit score directly related to the sale. However, a foreclosure greatly impacts the owner’s credit score and can prevent them from purchasing again in the future. 

While both short sales and foreclosures are a way of letting owners out of paying the full amount of the mortgage, the differences are clear.  While neither option seems ideal, a short sale is definitely the more attractive option for owners that owe more on their home than it is currently worth. It is important to remember that short sales require proof the short sale is necessary and must be agreed upon with the lender and the owner. 

March 5, 2022

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