Short Sale vs. Foreclosure. Which Is Best For Me?

November 14th, 2012 Categories: Chico Sellers, Short Sales

When your mortgage payments are no longer affordable, you have several options to consider. For homeowners in this situation, two of the most common courses of action are short sale or foreclosure. But what is the difference between short sales and foreclosures – and which is the better option for most homeowners? Read on to learn more about short sale vs. foreclosure.

What is the Difference Between a Short Sale and a Foreclosure in California?

Short Sale: In a short sale, a lender agrees to accept less than payment in full to allow the homeowner to sell the property. Lenders are willing to allow a short sale when they conclude that accepting a short pay will result in a higher payoff for them compared to foreclosing on the property.
To qualify for a short sale, lenders generally require the property owner to have a hardship. The lender requires a hardship letter from the homeowner explaining the hardship and outlining why he/she wants to sell the home. Hardships do not always have to be of a financial nature. Short sales do negatively impact a homeowner’s credit but not generally as severely as a foreclosure.

Foreclosure: In a foreclosure, the homeowner has stopped paying the mortgage and the lender takes over the home to recover their principal investment. Foreclosure is usually not a favorable option for the lender or the homeowner, as it results in a black mark on the homeowner’s credit rating that will last for years. Before beginning the foreclosure process, lenders in California must contact the homeowner to explore alternatives before foreclosing on the home. After this process is completed, the lender is allowed to file a “Notice of Default” which starts the foreclosure process. After 90 days have passed, the lender must perform some legal procedures, and may then file a “Notice of Trustee’s Sale,” which alerts the homeowner to the auction date of the home. This document is served to the homeowner and a copy is posted on the property itself. This process generally takes 21 days, but delays often occur due to possible short sales or the filing of bankruptcy and/or lawsuits.

Which is the Best Option – Short Sale or Foreclosure?
Foreclosure is almost always considered the last resort for the homeowner because it is so damaging to one’s credit score. An experienced short sale negotiation team, like the Sandi Bauman Team at Chico Homes, can help you short sell your home, while trying to reduce the credit impact the homeowner will experience. If you’re considering a short sale, you should keep in mind that most real estate agents do not have the knowledge or resources to successfully complete a short sale. And if they do, they may not address critical issues during the process. Make sure you do your homework prior to listing your home for sale as a short sale!