What is the difference between a short sale and a foreclosure?

When a homeowner is unable to make their mortgage payments, two processes occur: a short sale and a foreclosure.

A short sale is a form of real estate transaction in which a homeowner sells their home for less than their mortgage balance. The lender approves the sale, agreeing to accept less than the full amount owed to avoid the time and expense of a foreclosure. Short sales can be launched by either the homeowner or the lender, and they must be approved by all parties involved, including any liens on the property.

Foreclosure, on the other hand, is a legal procedure in which a lender seizes and sells a property after the borrower has fallen behind on their mortgage payments. Foreclosure proceedings differ by state and may entail either a court or an out-of-court approach. Following the completion of the foreclosure, the lender takes possession of the property and may sell it to repay the unpaid mortgage debt.

In summary, a short sale is a voluntary agreement between the homeowner and lender to sell the property for less than the mortgage balance, whereas a foreclosure is an involuntary legal process initiated by the lender to seize and sell the property after the homeowner has fallen behind on their mortgage payments.