Short Sales vs Foreclosures
outlines brief differences between foreclosures and short sales. What the are exactly and why they have occurred.
Don’t confuse the difference between foreclosures and a short sale. In the last few years both items have become known to many distressed homeowners due to the decline in the market today.
When a homeowner purchases a home he usually puts some form of payment towards the home and takes out a mortgage against the home. There is usually an institution like a bank that holds the mortgage and received monthly payments from the buyer.
However,
over time, many homeowners were not able to make those monthly payments. As a result they would end up defaulting on their mortgage. Options that the homeowners had were to either sell their home or refinance their mortgage at a lower interest rate. Due to the collapse of the housing industry, selling their home for a profit was not feasible. That, combined with a steep decline in housing prices, resulted in both options that were simply not achievable. Add in the millions of lost jobs in the American economy and you have a firestorm. As a result there have been a multitude of foreclosures.
Short Sales
A short sale can be defined as selling a home in which the sales prices does not equal the mortgage amount remaining. So if a buyer sells a home for $200,000 but has a mortgage amount of $250,00 there would be a deficiency of $50,000. The lender must approve this and is willing to take a loss on the transaction. Foreclosures can be extremely expensive to lenders who are not in the business of selling homes.
Foreclosures occur when the homeowner is evicted from his home for non-payment or lack thereof as a result of motions filed by the lender in the court system.
Foreclosures and short sales will both negatively affect the credit scores of the buyers. Both result in the homeowner losing their home. However, both methods will affect the homeowner and his/her attempts to receive a mortgage in the near future.
The waiting time for lenders to receive a new loan with vary depending on whether the home was foreclosed upon or was a result of a short sale.
