Short sale and foreclosure: How are they different?

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As unfortunateas it can be when homeowners fall behind on mortgage payments and must face thepossibility of losing their homes, short sales and foreclosures provide themoptions for moving on financially. The terms are often used interchangeably,but they’re actually quite different, with varying timelines and financialimpact on the homeowner. Here’s a brief overview.

A short sale comes into play when a homeowner needs to selltheir home but the home is worth less than the remaining balance that they owe.The lender can allow the homeowner to sell the home for less than the amountowed, freeing the homeowner from the financial predicament.

 

On the buyerside, short sales typically take three to four months to complete and many ofthe closing and repair costs are shifted from the seller to the lender.

On the other hand, a foreclosure occurs when a homeowner can nolonger make payments on their home so the bank begins the process ofrepossessing it. A foreclosure usually moves much faster than a short sale andis more financially damaging to the homeowner.

After foreclosure the bank can sell the home in a foreclosureauction. For buyers, foreclosures are riskier than short sales, because homesare often bought sight unseen, with no inspection or warranty.