Let's talk about short sales and foreclosures the similarities and the differences between them. Both short sales and foreclosures are financial options when homeowners find themselves unable to make their monthly payments.
Both have a negative impact on your credit score, credit report and the future of you getting another home loan.
A short sale transaction occurs when lenders allow the home owner to sell their home for less than the amount they owe.
For example, if the homeowner sells the house for $250,000, but the remaining loan balance is $300,000, the seller is essentially $50,000 "short" on paying the lender back. That's a short sale.
With that being said a short sale will do far less damage to your credit score, credit report and you getting another home loan. Some people in fact are able to buy another house without having to wait long. Foreclosure, however, will stay on your credit report for seven years.
Now in the event the owner can not pay off the outstanding debt, or sell the property via short sale we move to what is called foreclosure.
Foreclosure is a process that starts with homeowners not making timely payments. Most of the time it is due to hardships such as death, medical challenges, or unemployment .
After the homeowner has missed payments, a public notice known as a lis pendens is sent.
Once the homeowner has received the notice they are entered into a period called pre foreclosure. during this time the homeowner can work out an arrangement with the lender.
If the homeowner pays off the loan durning this period, the foreclosure ends.
If there is no resolution by a given date the home will be sold at a foreclosure auction.
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