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Short Sale vs. Pre-foreclosure vs. Foreclosure: What’s The Difference?

September 10, 2018

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When you have to sell your house because you’re behind on mortgage payments, your first reaction may be to panic, but take a deep breath first. Words like short sale, pre-foreclosure, and foreclosure are probably floating through your brain from bank and lender notices. Let’s take a moment to sort through these different terms so that you know where you are in the process and have an idea of where to go from there.

Short Sale

Short sale solutions come about when the homeowner is asking the bank to sell the property for less than what they owe the bank. In these cases, the homeowner typically owes more on the mortgage than the market value of the property, so they are turning to the bank for a short payoff of the loan. These sales go through a real estate agent, but they are not always short. They can take six months to a year to close. Lenders will agree to a short sale when they would rather lose some money on the mortgage than spend time on a foreclosure, which tends to cause them more legal and financial stress. Short sales are a preferable solution when selling a home because your credit score will not take the huge hit like it does when you foreclose.

Pre-foreclosure

If you are more than 90 days late on mortgage payments and the bank has begun the foreclosure process, your home is in pre-foreclosure. You still legally own the home, but the process of foreclosure has started. The state of pre-foreclosure can be a short sale if that is the way you choose to sell your house fast. When homeowners face pre-foreclosure, they still have a good chance of saving their home without having to sell it. Often, contacting the bank as soon as you start to get foreclosure notices is helpful. Banks do not want the property back, so they will try to find ways to work with you when possible.

Foreclosure

This final step means that the property lender — most often a bank — has taken back the property due to lack of payment. Foreclosures are typically sold at an auction sight unseen. The share of housing units with a foreclosure filing was 0.51% in 2017. As foreclosures damage your credit score and are a disheartening process, you want to avoid becoming a part of this small percentage as much as possible. Don’t hide from calls from your lender because the problem will not go away. Contact them and try to restructure the loan or ask for a forbearance. In your personal life, look for new ways to save money and earn more. If you cannot keep your home financially, look into pursuing a short sale for a relatively quick sale.

Ignoring notices for late payments on your mortgage will only make the problem worse later on. Start finding a solution now so that you can either keep your home or sell your house fast and cut your financial losses.