Regardless of your role in real estate, whether your a homeowner, borrower, or buyer, knowing the difference between a short sale and foreclosure helps you understand what you are dealing with. A short sale or foreclosure both present advantages and difficulties. That’s why it helps to know the difference and understand your options.
What Is A Foreclosure In Arizona?
In simple terms, a foreclosed property is one that has gone through the foreclosure process. This means the lenders have repossessed the property due to the owner being unable to make their house mortgage payments. If you stop making these payments after securing the loan to acquire your home, your lender has the right to start the foreclosure process on your property so they can try to recoup the money lent to you for that property.
In a foreclosure the lender assumes ownership and possession of the property, evicting the borrower so they can sell the property again. They can sell the property at an auction or through a traditional sale with a real estate agent. A foreclosure can negatively affect the credit rating of a borrower and make it very difficult to obtain another mortgage even years after.
Depending on your location and state laws, foreclosure can work in different ways. Be sure to read about the foreclosure process in Arizona. Our article on this topic will definitely help you understand the process better. One thing to remember is foreclosure does not automatically mean foreclosed.
What Is A Short Sale In Arizona?
In a short sale, the home is still owned by the borrower. A short sale is one of the options when you are upside-down on your mortgage or owe more than what your property is currently worth.
The simple definition of a short sale is the house is sold but the proceeds from selling the property is lower than the balance owed on it. Also, the property owner is not able to afford to pay the balance in full and the lender agrees to accept less than the amount owed by the borrower.
In some cases, the unpaid balance or deficiency may still be owed by the borrower. How the deficiency is dealt with will rely on the agreement between the borrower and lender since the property is sold for less than the outstanding balance of the mortgage.
This process typically takes some time since in some situations the mortgage is owed to not just one but a few different lending institutions. All parties who have a stake in the property must agree to the terms of the sale. There is a potential risk that the deal could fall through if one lender doesn’t agree with the terms.
Short Sale vs Foreclosure: The Difference and Your Options
The main difference between the two has to do with the impact on the borrower’s creditworthiness. While both options can have consequences, a short sale often has less of an impact on the borrower’s credit than a foreclosure. A foreclosure could impact a borrower’s credit score by 300 or more points while a short sale may only dent the credit score by 100 points.
Another difference between the two is the borrower’s eligibility to purchase another home through a traditional mortgage. A borrower who is foreclosed on may be ineligible to purchase another home for 5-7 years, while under certain circumstances, a short sale borrower can purchase another home immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed on and initiating a short sale is an easy choice for a borrower having trouble paying their mortgage on time. Sometimes, lenders are willing to work with borrowers to complete a short sale to avoid the fees and time-consuming process of conducting a foreclosure.
There is also a 3rd option. You can instead choose to sell your Arizona house fast directly to a professional buyer or investor who can come up with creative ways to achieve a win-win solution so you can stay in your house longer and fully avoid any impact on your credit.
Here Are Our Suggestions:
- Talk with your lender and discuss ways they can work with you on your loan. Let your lender know about your situation and find out how they can help and what they are willing to do. We can help too! We can guide you in the right direction if you run into issues with your lender. Just reach out to us and let’s discuss your situation.
- Attempt a short sale or other programs your lender may have. Your lender may have a program that forgives part of your loan, and creates a new and more affordable monthly payment plan so you can get back on your feet.
- If your lender or bank isn’t willing to work with you, your best option may be to sell your house. Work with a local professional house buyer like Rusty and Susanna of Pinal County House Buyer to get a creative win-win solution to take care of your mortgage. We can look into your situation and give you a solution within 24 hours. There are more options than just a short sale or foreclosure. We’d love to talk to you about the options available and the difference each would make.
- Foreclosure. This should only be your last resort and must avoid it at all costs. This is the worst possible scenario because it’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options and the difference presented, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option between the two.
But always remember that there are other options available to you. You can talk to us about it if you want to know more and definitely make a difference. If you are considering selling your house, you can also take a look at the difference between selling the traditional way and selling to a real estate investor.