Whether you’re a buyer or a borrower/seller, a short sale and foreclosure each present different advantages and difficulties. But what is the difference?
As your local Southern California home buyers, Homesmith Group has prepared this article for you! Keep reading to find out what’s the difference between short sale and foreclosure in Los Angeles.
What Is A Foreclosure In Los Angeles?
In simple terms, “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home”. If you stop making your house payments, your lender has the right to foreclose on your property so they can attempt to recoup their money that was lent to you.
A home is typically foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of real estate agents. A foreclosure can damage the credit rating of a borrower, and make it very difficult to obtain a mortgage for many years.
Depending on the state that you live in, foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is, “The definition of a short sale is, “A short sale in real estate is when a financially distressed homeowner sells their property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against the borrower requiring them to pay the lender all or part of the difference between the sale price and the original value of the mortgage. In some states, this difference must legally be forgiven in a short sale. (Source: Investopedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.
Short Sale Vs. Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase 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 and initiating a short sale (or a 3rd option – selling your Los Angeles CA house fast) 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.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender. Just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new/more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much, your best option may be to sell your house in Southern California. Work with a local real estate house buyer service like Homesmith Group to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here.
- Foreclosure. The last resort is to let the house fall into foreclosure. This is the worst possible scenario. 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, 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.
Homesmith Group Buys Houses In Los Angeles CA
Yes, that’s right! We buy houses in Los Angeles and throughout the Southland.
So if you have a pending foreclosure and you have decided to sell your home to get out of the situation, we can help you. We offer cash for houses in SoCal and we can offer you a fair price for your property. Feel free to get in touch with us!