Q: What is the difference between a short sale and a foreclosure?
A: A short sale involves the sale of an “under water” property, whereby the proceeds of the home sale will be LESS than the total mortgage balance and the owner cannot afford to pay the balance of the debts against the property. Purchasing such a property requires that the bank agree to accept less than the amount owed on the property, releasing the lien on the property. According to realtor.org, “ A short sale is a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan”
Houselogic.com explains foreclosure as “The process whereby a lender, such as a bank, seeks to repossess a property where the owner has failed to comply with the terms of the mortgage or promissory note, such as not making a payment. Once the property has been foreclosed, the bank can then sell the house, using the money to pay its costs.”
AOL Real Estate offers an explanation to help distinguish one from the other, in that, ”Short sales can also be referred to as ‘pre-foreclosure sales’ which, as the name implies, precedes the home being officially repossessed or foreclosed on by the lender. That is, the property is sold much earlier than the months it typically takes to reach foreclosure, allowing all parties to move on from the transaction sooner.”