Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties. So what’s really the difference between a short sale vs foreclosure? Let’s take a closer look!
What Is A Foreclosure In Dallas / Fort Worth, TX?
In simple terms… “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source). If you stop making your house payments… the lender has the right to foreclose on your property so they can attempt to recoup the money they loaned you.
A home is typically foreclosed on when a borrower fails to make their mortgage payments. The lending institution assumes ownership and they take possession of the property, evicting the borrower. These homes and land are then sold at auction or more traditional means utilizing the service of real estate agents in the area. A foreclosure can damage the credit rating of a borrower, and can make it very difficult for that borrower to obtain a mortgage for many years to come.
Depending on the state that you live in… a foreclosure can work in many different ways. Check out the foreclosure process information in the state of Texas over here at the HUD Government website found at HUD Foreclosure Counseling.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
In some cases, a short sale is an option agreed upon by borrowers and the 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 borrower.
This option typically takes quite 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 just one lender doesn’t agree. So, as you can see, these can be quite tricky situations, and not everyone that seeks a short sale can get approved for them.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, that is (short sale vs foreclosure) a short sale often has less of an impact on the borrower’s creditworthiness, which really is ideal if the borrower is hoping to be able to borrow again in the near future. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points. Recovering from a 100 point hit to your credit would be easier and take less time than a 300 point recovery. So already you can see that with a short sale vs foreclosure, a short sale is a better option just when considering the credit score situation.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower could purchase immediately or not too long thereafter.
As many Americans struggle with an economy that’s uncertain and many have fallen to hardships during these unstable times, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed on and initiating a short sale is an easy choice for a borrower having troubles paying their mortgage on time. But did you know there’s actually a 3rd option… selling your Dallas / Fort Worth house fast to us at Madison Lea Homes. More about that later…
Sometimes, lenders are willing to work with borrowers to complete a short sale in order to avoid the fees and time-consuming process of conducting a foreclosure. Banks are not in business to own homes, so whatever they can do to avoid the foreclosure process, in these cases, short sales may be a very appealing option for them depending on the scenario.
Our suggestion is always this when considering a short sale vs foreclosure.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation. If you haven’t picked up the phone and called them to discuss your situation, you really should consider doing that. If you’re behind in payments, they might think you don’t care about your situation and might be wondering why you’re avoiding them. A few minute phone call to your lender explaining your situation can be a great way to start to remedy the unfortunate situation you currently find yourself in.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc. You never know, the lender might be very willing to talk with you about the short sale vs foreclosure options and discuss whether you might qualify for a short sale instead of a foreclosure.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Madison Lea Homes to sell your house fast for an all-cash offer. If you’re 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. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It will harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished. If you can possibly avoid a foreclosure, that’s really your best bet.
By knowing your options in Texas, you may be able to dodge 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 really be the better option.
Have a pending foreclosure in the Dallas Ft Worth area? We’d like to make you a fair all-cash offer on your house.