Many people ask us what is the difference between a short sale and a foreclosure. In this article, we explain the differences and present some of the advantages and disadvantages of both. If you may be facing a foreclosure or short sale this is for you.
What Is A Foreclosure In Grand Rapids, Michigan?
“A house that has been foreclosed is one in which the owner is unable to make the mortgage payment. Because the loan is not being paid in a timely manner, the bank repossesses the home.” When you stop making your loan payments… your bank has the right to foreclose on your property so they can attempt to recoup the money that was lent to you.
The next step in foreclosure is when the the lending institution assumes ownership and possession of the property, evicting the borrower. Often, these properties are sold at auction or more traditional means through local real estate agents. A foreclosure normally damages the credit rating of a borrower, which makes it very hard to get a loan for any reason for many years. For instance, a person who has gone through a foreclosure probably will not be able to get a loan for a car for years.
There are different processes of foreclosure depending on the state you live in. In Michigan, this article will be helpful for local information.
National information can be found here at the HUD Government website.
Okay, Now What Is A Short Sale?
The borrower still owns the home in a short sale.
When a financially distressed homeowner sells their property for less than the amount owed, it is termed a short sale. The buyer of the property is not the bank, but all proceeds of the sale go to the bank. The bank has two options – they can simply forgive the remaining balance or try to get reimbursed by the homeowner through the courts in something called a deficiency judgement.
In some cases, a short sale is an option agreed upon by homeowners and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the homeowner.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender does not agree.
Short Sale vs Foreclosure – Your Options
Both options can have negative consequences, but in a short sale it often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score more than 300 points, where a short sale may only impact the credit score by 100 points or so.
The penalty for homeowners who are foreclosed is that they are not able to purchase another home for 5-7 years with a normal mortgage. After a short sale, the homeowner is often immediately able to purchase a different home.
Many Americans have not completely recovered from the 2008 crash. Some people are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Grand Rapids house fast ) is an good thing to consider for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Here are the steps we recommend:
- Talk with your lender and discuss ways that they can work with you on your loan. We can assist you in this process if you would like. Just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have. If the lender will forgive part of your loan or create a new / more affordable monthly payment this is often the best path forward.
- If the bank isn’t willing to work with you. Then usually your best option will be to sell your house fast. Contact a local professional house buyer like us, AKJ Sell Today, to sell your house fast for an all-cash offer. If interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Due to the impact on your credit, the last resort is to let the house fall into foreclosure. This is the worst option because it will take years to rebuild your credit and in some cases you could be required to repay the bank after the foreclosure is completed.
By knowing your options, you may be able to avoid a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? Contact us for a fair all-cash offer on your house.