Difference Between Short Sale And Foreclosure
When people face financial difficulties, it is usually the mortgage payment being made each month that suffers. |
Sponsored Links :
|
In case these payments are missed, the fear of a foreclosure can make more miserable than it already is. It is at a time like this when people keep swaying between opting for a short sale and foreclosure. However, in order to decide, you first need to know the difference between a short sale and a foreclosure.
Usually a foreclosure happens when the lender takes your property, which is held as collateral for a mortgage, because you default on the monthly payments of the mortgage. The period for default is mentioned in the loan agreement, and a foreclosure happens after many consecutive payments on the mortgage are not done. Different states have different rules on the process of foreclosure.
On the other hand, a short sale occurs when the homeowner decides to sell the property to a buyer who is interested in purchasing it either for the outstanding amount of the mortgage or for an amount less that what is due on the mortgage. This process has to be approved by your lender. But once approved, you are relieved from the liability of repaying the mortgage, and you do not owe any money to the lender.
The other difference between a short sale and a foreclosure is the effect on your credit rating. A foreclosure will have an adverse effect on your credit rating. Your credit scores will fall by as much as 300 points after a foreclosure. This will take some time to rectify, and in the mean time you will not be able to apply for a new loan or rent an apartment without laying down a huge security deposit.
On the other hand, a short sale's effect on your credit score is not that bad. Your scores will fall by around 90 points, and that too because the lender has reported that you defaulted on payments.
When your home is foreclosed, the house is put on an auction by the lender. If the house is sold at a lower price than what is owed on the mortgage, the lender can sue you to recover the difference. However, in a short sale, the buyer negotiates the final offer with the lender. Therefore, even if the price is lower than what is owed on the mortgage, it will not affect you, and you will not be held responsible.
More Articles :
|
