Short sale and foreclosure are two terms you’ll likely encounter when researching your options as a homeowner who has fallen behind on mortgage payments. While short sales and foreclosures end in the sale of your house and might release you from mortgage payments, their processes and repercussions differ significantly.
In this post, we’ll discuss these two choices in great detail — including how each works, the primary distinctions between short sales and foreclosures, how they affect your financial future, and more.
What Is Foreclosure?
When you stop making your mortgage payments, your mortgage financier can legally take ownership of your Pittsburgh house and sell it, either to the highest bidder at a public auction or by listing it on the market.
This process, known as foreclosure, usually begins after you have missed mortgage payments for three or more months and every other effort to assist you in catching up on your payments has failed.
If your lender doesn’t follow the established Pittsburgh foreclosure timelines and notify you of their intention to foreclose, you might be able to postpone or even prevent a foreclosure.
Should the sale proceeds from foreclosure be insufficient to fully pay off your mortgage balance, as is frequently the case, your lender may pursue a deficiency judgment within six months, which would allow them to hold you liable for the difference between your home’s sale price and the outstanding mortgage balance.
Due to this action, you may still be in debt after losing your house. If you’re fortunate enough to have money left over after your mortgage obligation is paid off, you’ll receive the balance from your lender.
What Is a Short Sale?
A short sale is a home-selling method only accessible to borrowers who have defaulted on their mortgage for months and face the prospect of losing their house to foreclosure.
It entails asking your mortgage lender for permission to sell your home for less than what you currently owe on the mortgage, with all of the money from the sale going toward your mortgage debt repayment.
For example, if you get approval from your bank to sell your house for $400,000 but still owe $550,000 on your mortgage, you’ll be $150,000 “short” of what you should ideally repay the lender.
Short sales are frequently attempted by homeowners whose property value has fallen below their mortgage balance and are unable to keep up with their monthly payments.
In many cases, if your lender accepts your short sale request, they’ll forgive or write off the remaining mortgage debt when the short sale closes, meaning your home loan will be paid off and you’ll have no further liability.
While the lender loses money in a short sale, they’re able to recoup as much of their investment as possible, and you and the lender can both avoid the costly foreclosure process.
Short Sale vs Foreclosure: 3 Key Differences
When deciding between a foreclosure and a short sale, it’s important to understand the key differences between the two, and how they’ll impact your future.
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Credit Impact
One of the main concerns for homeowners who are having trouble paying their bills is credit score damage.
Both foreclosure and a short sale will cause your credit score to decline by at least 100 points, but if you can persuade a lender to classify your mortgage as “paid” rather than “settled,” the impact on your credit score after a short sale may be less severe.
Short sales are frequently reported as settlements, not as debt paid. This results in a more unfavorable credit rating, since it informs a credit bureau that your creditor took less than was due.
Mortgage lenders lose money on short sales and are rarely willing to report a short sale mortgage as paid. Still, they might do it for you if you’ve established a good credit history and have provided a compelling explanation for your inability to continue making payments on your loan, such as the death of your primary provider or a serious illness.
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Future Homeownership
You might be eligible for a second mortgage within two years after completing a short sale, depending on the specific causes of your short sale.
One of the worst things for your credit score is foreclosure. It generally leads to a longer waiting period—up to seven years—before you can qualify for a new mortgage.
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Homeowners Involvement
A homeowner who wants to escape financial difficulties may voluntarily start a short sale.
Speaking with your bank about selling your house as a short sale is the first step in the short sale process if you’re a distressed homeowner.
At this stage, you can provide the lender with an array of documents, such as W-2 forms and bank statements, demonstrating that you’re incapable of continuing to make your mortgage payments and that you have no assets that would enable you to reinstate your mortgage.
Without the lender’s consent, no short sale can take place.
If they agree to a short sale, you’ll be in charge of the entire house-selling process, including hiring a real estate agent, marketing your house, and evaluating the offers from potential buyers.
Generally, you can live in your home during the short sale process and a move-out date can be negotiated.
In a foreclosure, the lender starts the process by going to court to obtain authorization to take possession of and sell your house. You can be forcibly evicted and won’t have any say in the sale once they obtain a court’s approval to foreclose your property.
Homebuyers of Pittsburgh: The Best Way to Sell Your Home Quickly When Under Financial Stress!
Has your financial situation suddenly deteriorated to the point that you’re behind on your mortgage payments, possibly as a result of a job loss or exorbitant medical bills? The stress of dealing with a foreclosure or complicated, time-consuming short sale is the last thing you need.
HomeBuyers of Pittsburgh, a reputable local real estate company, can provide you with a simple and fast way to sell your home. We offer competitive cash offers for houses in any condition and handle all the paperwork and closing processes, allowing you to pay off your mortgage, keep your credit intact, and secure the money you need to get back on track financially.
To learn how we can help you sell your home in a few days to raise the much-needed funds you require to avoid a short sale or foreclosure, contact HomeBuyers of Pittsburgh at 412-444-8914 or info [at] urbanpgh.com to arrange a free consultation.
