What Is The Difference Between A Short Sale And Foreclosure?

What Is The Difference Between A Short Sale And Foreclosure|How It affects your credit

The intention of this article is to give you a brief understanding of how a Short Sale Vs. Foreclosure affects your credit and ability to buy a home in the future. The description of each process is very brief and a "nut shell" version of the more detailed definitions of each. You can click on any of the links below to gain a broader understanding of the Short Sale and Foreclosure Process. This article assumes you already have a basic idea of each.

Nutshell Description of a Short Sale and Foreclosure.

Short Sale:

When a seller must sell their home for less than they owe on the property, and the lender that they owe the money to agrees to take less than they originally loaned, that is a short sale. The "short" of the sale is the difference between what the property can be sold for (+expenses) minus the loan balance. Example: Home owner owes $400K on loan for their home, but the home is only worth $300K. The "short" of the sale would be $100K Plus Expenses that the Lender would have to take a loss on.

Foreclosure:

Most Foreclosures in California are Non-Judicial foreclosures which means there must be a power of sale clause in the mortgage/loan document or deed of trust. This is a clause saying that the home owner agrees to allow the lender to sell the home in the event the buyer defaults on the loan. Of course, there are a number of steps involved that allow the home owner to “make good” on the loan by catching up payments and even renegotiate the loan so they can stay in their home. If that’s just not an option the homeowner can exercise, eventually the Lender will send a Notice of Default, arrange for a Trustee’s sale, the home owner is evicted and attempt is made to sell at a public auction. If it can’t be sold at auction the lender takes back the property through the "Foreclosure" procedure and will eventually sell it on the MLS to recover their losses.

Here's how the borrower or homeowners credit and ability to buy in the future is effected by each:

Short Sale:

How does it affect Your FICO/Credit Score? With a short sale, there may be less of an impact on your credit score, especially if you maintain your other debt obligations. Fair Isaac (FICO)says that your score may be compromised by 40-135 Points When Can you Buy again? Now you may feel like you never want to own home again but that will pass. Eventually you will want to buy another property and with a succesful short sale you will more likely be able to do so sooner than if you Foreclosed. Various resources report as soon as 24 months post short Sale

Foreclosure

How does it affect Your FICO/Credit Score? Your credit may be hit much harder, as much as 200 to 300 pts. When Can you Buy again? Most reputable sources report that post foreclosure, there is typically a longer period of time before you can buy again verses the short period experienced after a short sale. Most likey it will be 24-72 months for you can get a loan with a reasonable interest rate. If you think or believe you qualify for a short sale and are ready to take the next step please contact us immediately. There is no fee for a consultation.

More Short Sale FAQ's (frequently asked questions)

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Copyright © 2010 By Stephen Munson,Munson Realty Southern California Real Estate*What Is The Difference Between A Short Sale And Foreclosure * This information is meant to be helpful and informational purposes only, Please seek legal advice.