Foreclosure vs short sale? What is the difference?
The main difference between a foreclosure and a short sale is the homeowner’s choice of being reactive versus proactive. No homeowner wants to be foreclosed upon. Nor does the bank want to have to foreclose and evict the homeowner from their home. But the reality is that if a homeowner defaults on payments, a foreclosure is inevitable.
Whether a homeowner chooses to permit foreclosure or to avoid foreclosure through a short sale, will make a big difference in the homeowner’s credit score and their ability to buy a home again in the near and long term. Homeowners who permit foreclosure harm their credit over the long term, whereas homeowners who avert foreclosure will have a much shorter “waiting period” to buy a home.
If the homeowner chooses to “walk away” and “let the foreclosure happen” or intentionally delay the Texas foreclosure process to save on rent money, the homeowner’s decision was clearly to permit foreclosure and deal with the consequences later. Because a foreclosure costs a bank a lot more money than a short sale, a bank can pursue a “walk away” homeowner for this loss through a deficiency judgment and see to it that their credit is damaged for many years into the future.
If a homeowner chose to short sell their home, it was because it was important to them to minimize the impact of a potential foreclosure on their credit report. Homeowners who short sell their home are more likely to get a better deal from the bank such as moving money and more favorable credit reporting simply because they are cooperating with the bank, which reduces the banks legal fees, property management expenses, and carrying costs.
If you have any questions about avoiding foreclosure, please contact us.