What Is the Difference Between Short Sale vs Foreclosure?

Short sales and foreclosures are two ways for homeowners to sell their homes when they owe more on their mortgages than their homes are worth. Both options can have a negative impact on a homeowner’s credit score and future ability to borrow money, but there are some key differences between the two.

What is a short sale?

A short sale is a transaction in which a homeowner sells their property for less than the amount they owe on their mortgage. This typically happens when the homeowner is in financial distress and cannot afford to continue making their mortgage payments. The lender must approve a short sale before it can go through.

What is foreclosure?

Foreclosure is a legal process that allows the lender to repossess the property if the homeowner defaults on their mortgage. This means that the homeowner is behind on their payments and the lender has taken steps to sell the property to recover the money they are owed.

Key differences between short sales and foreclosures

CharacteristicShort SaleForeclosure
Voluntary or involuntaryVoluntaryInvoluntary
Initiated byHomeownerLender
Approval requiredYesNo
Credit score impactLess negativeMore negative
TimeframeSeveral monthsTypically 3-6 months

Which Option is Best for You?

The best option for you will depend on your individual circumstances. If you are able to negotiate a short sale with your lender, it may be the better option for you, as it will have less of a negative impact on your credit score. However, if the lender is not willing to approve a short sale, you may need to consider foreclosure.

How to Get Help

If you are struggling to make your mortgage payments, there are a number of resources available to help you. You can contact your lender to discuss your options, or you can seek help from a housing counselor.

The following are some organizations that can provide assistance:

  • National Housing Counseling Agency: 1-800-569-4287
  • Homeownership Preservation Foundation: 1-888-995-HOPE.
  • NeighborWorks America: 800-438-5547.

Additional information for homeowners

If you are considering a short sale, it is important to work with a qualified real estate agent who has experience with short sales. They can help you price your home correctly and negotiate with your lender to get the best possible outcome.

If you are facing foreclosure, there are resources available to help you. You can contact your lender to see if they have any programs to help homeowners avoid foreclosure. You can also contact a housing counselor for free advice and assistance.


Short sales and foreclosures are both serious financial events that can have a significant impact on your credit score and ability to qualify for a mortgage in the future. If you are facing financial hardship, it is important to talk to your lender and seek professional advice to determine the best course of action for you.

Frequently Asked Questions (FAQ)

What are the disadvantages of a short sale?

Disadvantages of a short sale:

  • The seller may still be responsible for any deficiency balance, which is the difference between the sale price and the amount owed on the mortgage.
  • Short sales can take longer to close than traditional sales.
  • The seller may have difficulty getting approved for a new mortgage for several years.

Why is it called a short sale?

A short sale is called a short sale because the seller is selling the property for less than what is owed on the mortgage.

Difference Between Short Sale vs Foreclosure?

Short sales and foreclosures are two ways that homeowners can get out of paying for their mortgages. Short sales are voluntary, meaning that the homeowner needs approval from the lender. Foreclosures are involuntary, meaning that the lender takes legal action to take control of and sell the property. Homeowners who use short sales are responsible for any deficiencies payable to the lender.

Who suffers the most in a foreclosure?

The borrower suffers the most in a foreclosure. They lose their home, their investment in the property, and their credit score is severely damaged. This can have a devastating impact on their financial and personal life.

Does foreclosure reduce interest?

No, foreclosure does not reduce interest. The borrower continues to accrue interest on the mortgage debt until the foreclosure is finalized.

Is loan foreclosure good?

Loan foreclosure is not good for anyone involved. It is a difficult and stressful process for the borrower, and it can have a negative impact on the lender and the community as well.

What happens if we foreclose a loan?

If you foreclose on a loan, you are taking legal action to reclaim the property that was used as collateral for the loan. This process can vary depending on the state in which you live, but it typically involves filing a lawsuit against the borrower and obtaining a court order to sell the property.

What is the reason for foreclosure of a loan?

The most common reason for foreclosure of a loan is when the borrower defaults on the loan by failing to make their mortgage payments. Other reasons for foreclosure include bankruptcy, job loss, or medical expenses.

What are the foreclosure charges?

Foreclosure charges can vary depending on the state in which you live, but they typically include attorney’s fees, court costs, and filing fees.

How is foreclosure calculated?

Foreclosure is calculated by adding up the total amount owed on the mortgage, plus any interest, fees, and penalties. This is the amount that the lender will need to be paid in order to satisfy the debt and avoid foreclosure.

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Razib is a skilled writer with 5 years of experience specializing in technology, finance, automotive and real estate. A BBA graduate from 2014, Razib's passion for these industries shines through in his informative and engaging content. His ability to break down complex topics and stay current on the latest trends makes him a valuable resource for readers seeking to understand these dynamic fields.

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