Short Sale vs. Foreclosure

For those facing a foreclosure, a short sale is sometimes the best option

. You'll have to propose the idea to the bank yourself. There are some significant differences between the two scenarios. The most important one is that the short sale is voluntary. You can think of it quite accurately as honorably bowing out of a debt that you're simply unable to pay off and that you have to walk away from. The bank is getting something out of this deal, as well, so don't feel like its charity.

Short Sale vs. Foreclosure: The Process

A foreclosure's imminence is something that you find out about from the bank. This happens when you miss a certain amount of payments, though it may be literally only one missed payment in the worst loans. A short sale is something you propose to the bank. It's a business deal, not a default. In some cases, it's the only realistic way that the bank is going to recoup a worthwhile amount of their losses due to the mortgage falling through. This is due to the way that the short sale unfolds.

Short Sale vs. Foreclosure: Getting out of the Debt

In a foreclosure, you're more or less kicked out of your home by the lender. You have no right to any of the proceeds from the sale and, in reality, no right to the house at all once the foreclosure is finished. The bank takes over and, with or without a court supervising it, the bank sells the house and all lien holders are paid off with the proceeds. This is very expensive for the bank. In a short sale, you sell off the house for an amount that you know won't cover the entirety of your remaining debt under the mortgage. The bank doesn't take charge of the property and it's sold by a realtor of your choosing.

Short Sale vs. Foreclosure: The Outcome

In a foreclosure scenario, you get nothing out of the sale of the house. You walk away with a lot of debt, in most cases, and with no home. The bank recoups part of their losses, but this is usually not enough to make the deal a good one for them. They're aware of this and, no matter how many nasty phone calls you've received from your lender, they would very much prefer that they didn't have to foreclose.

For the debtor, a short sale means that the amount netted because of the sale goes directly to the creditor, forgiving that amount of the debt. Because of the Mortgage Forgiveness Debt Relief Act of 2007, this is not taxable income and will not be until 2012, under the extension that was recently approved. The short sale also helps the bank to avoid taking over your home and the related expenses.

For many banks, this is the preferable way to go about unloading a property that they're going to lose money on. They lose far less with a short sale.

Short Sale vs. Foreclosure

By: Sean Crosier

POST COMMENT

Dealing With Foreclosure And What It Can Do To You Avoiding Foreclosure via a Short Sale A Proof Of Income Is Needed For Preventing Foreclosure How Foreclosure Works? Is It Safe? Massachusetts Foreclosure Attorneys: Helping To Stop Foreclosure Why to Look for Sacramento Foreclosure Listings and Why Live in Sacramento What Matters When It Comes to Foreclosure Rights? The Riskiness Of Connecticut Foreclosure How To Avoid Foreclosure Quickly Benefits of Foreclosure Modifications Reo Foreclosures Making Preparations To Invest Foreclosure Stopping How To Stop A Foreclosure What To Do If You Need Help In Foreclosure