What is the difference between a short sale and foreclosure?

January 23, 2012

Real Estate

What is the difference between a short sale and foreclosure?

Whether you’re a seller in the middle of a real estate problem or you’re searching real estate listings as a potential buyer, it’s important to know the difference between a foreclosure and a short sale. Foreclosure is a far worse fate than a short sale if you are the seller, but as a buyer of a distressed property, a short sale is often the more difficult process to wade through.

A property that has been foreclosed on means the owner was not able to make the monthly payments for a certain amount of time and the lender has taken control of the property. If not sold at auction, foreclosure property is simply owned by the lender, often called REOs or real estate-owned properties. In either case, the seller is taken out of the equation and the buyer only negotiates with the bank /lender.

You can stop a foreclosure by considering a short sale. Don’t be fooled by the name, the process of a buying a short sale property can be a long one. Once the seller accepts an offer, he sends it to the lender for approval. Even if a seller accepts the offer, the lender’s approval is the one that matters and that can take time. More paperwork is involved in a short sale than a regular sale, or even a foreclosure.  Use a realtor who is knowledgeable in short sales, as there are many nuances to completing a short sale successfully.

With both foreclosure and short sales, the sellers credit is affected negatively. According to MyFico.com for a foreclosure, you can expect your FICO score to drop by as such as 200 and for a short sale at least 75 points.  Both types of default are considered as “not paid as agreed.”  There are also tax consequences to consider with both options – check with your accountant.

Sonja Bush

Broker Associate – DRE #01904399


The Village at Mammoth

661.979.9000 cell

[email protected]


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