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Difference between foreclosure and short sale

enero 7, 2020

Foreclosure a process in which the lender takes possession of the mortgaged property when the borrower is unable to constantly pay the outstanding payments. On the other hand, the short sale a process in which the lender allows the owner of the property to sell it, alone.

The main difference between foreclosure and short selling is that the two are used at different times, just as they are initiated by different people.

These are the two alternatives available in the hands of the homeowner, who constantly fails to make the loan payments. So, it's essential for everyone to know the difference between foreclosure and short selling, which can help you choose the best alternative.

Comparative chart

Basis for comparison foreclosure Short sale
SenseA process in which the lender takes possession of the property, after the borrower's default in payment, known as foreclosure.When the property is sold, at a price lower than the remaining amount as a mortgage balance, known as a short sale.
New mortgageAfter 5 or 7 yearsIn 2 years
UsedWhen the borrower fails to make the payment.When the borrower fails to make the payment, the value of the property under a mortgage less than he owes and the lender allows for it.
Credit scoreSeverely affectedComparatively less affected
Started and sold byLenderborrower
Property controlMortgage lendermortgage

Definition of foreclosure

The foreclosure is a legal process, which involves the seizure of property by the creditor, kept as collateral under the mortgage, in which the property right of the house canceled, due to default in the payment of the outstanding debt. In this process, the property is put up for auction by the lender to recover the remaining loan amount.

Foreclosure is a civil lawsuit, generally used by the mortgage to resolve the borrower's interest in the property, through the court order. In this process, the court sets the date until which the borrower is authorized to pay the debt along with the foreclosure fees and redeem the property.

If the borrower is unable to repay the loan amount, then the lender can freely sell the foreclosed property. The proceeds received from the sale of the property are used for the first time in repaying the loan and the residual amount (if any) is delivered to the home owner (borrower). The borrower remains liable if the foreclosed property is not sold and also for the balance amount if the property is sold, but the proceeds from the sale are not sufficient to cover the full amount of the debt.

Definition of short selling

A short sale is an option, usually exercised when the homeowner owes more debt than the mortgaged business can generate income and the borrower is unable to pay the outstanding debt, so the lender opts for the sale. in the open or expresses his consent for a short reward. In this way, the property is not foreclosed, and the owner of the house is authorized to put his property up for sale on his own.

The remaining balance due to the creditor known as a shortage. a complicated and time-consuming process as it requires a lot of paperwork and multiple approvals.

Key differences between foreclosure and short selling

The significant differences between foreclosure and short selling are shown below:

  1. Foreclosure is a process in which the lender seizes the property after the borrower's default in payment. The short sale when the property is sold, at a price lower than the amount that remains as the mortgage balance.
  2. The borrower can take advantage of the new mortgage after 5 to 7 years of foreclosure and after two years in the case, the property offered for short sale.
  3. Foreclosure is used when a borrower is unable to make the payment. Unlike short selling, when the defaulting mortgage, the value of the property in a mortgage lower than it should, and the lender allows it.
  4. In foreclosure, the borrower's credit score and history are severely affected, while in a short sale the borrower is relatively less severely affected.
  5. The lender starts the foreclosure procedure and the sale of the property. On the other hand, the short selling procedure is started and the property is sold by the borrower.
  6. The mortgage exercises control over the property being foreclosed. Unlike the short term sale, where the borrower has control over it.

Conclusion

The biggest point of difference between these two terms is that foreclosure is a forced sale, that is, something that happens to you forcedly, but short selling is a voluntary sale, that is something you do. Both have their pros and cons. However, a short sale is a better option but requires more paperwork than in foreclosure.

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