Foreclosures Vs Short Sales – A General Debate

In the world of mortgage related finance, there are many people who consider short sales a type of foreclosure, or some who consider both as one and the same. There are some who feel that short sales don’t affect a person’s credit history negatively; firms offering short sale marketing and other short sale investing aspects often promote short sales in such a way. Ignorance often causes rumors, myths and even comedy.

So the obvious question is – how different or how similar these aspects are? A small but brief discussion comparing the 2 mortgage based financial processes via some important factors is done as follows:

Definition

A foreclosure is a process through which a lender or a lending agency takes the legal ownership from a defaulting mortgage borrower. Likewise, a short sale is a process of selling the real estate property to avoid foreclosure.

Legal Aspects

Foreclosures are a legal process, while short sales are actually a type of compromise, a lender does for a borrower who has financial issues (major defaults in the terms of mortgage agreement), related to the property in question. A lender has to provide 90 days to the borrower to take the mortgage out of default, and then the lender posts a public foreclosure auction notice. The auction is held 30 days after the notice.

Approval/Consent

As a foreclosure has more legal aspects, it is a forced process wherein there is no requirement of consent from the borrower. But, short sales are processes where consent of both the parties is required. In addition, foreclosures require the lender to perform most of the aspects, while a short sale requires the borrower to perform most of the tasks from approvals to hiring agencies.

Effect on Credit History

Unlike what is perceived, both the processes affect the credit history negatively, it is just that foreclosures are lethal and short sales are a degree better, but still bad on the credit history. On an average, if a foreclosure affects the credit score by say, 300 points, then a short sale will flush away almost 150 points.

Lastly, for all mortgage users, it is essential to understand all the aspects and then sign the dotted line. Seeing an attorney is highly recommended in both the processes.


With many financial guides (available over the internet) accommodating foreclosure and short sale trainings, understanding these processes isn't very difficult. This article provides information about short sales without the influence of upscale short sale marketing.