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Chapter 2: Short Sales vs. Foreclosure Properties – What is the Difference?

For struggling homeowners, short sales are an alternative to foreclosureBoth borrowers and buyers will find that short sales present different advantages and challenges. For homeowners, the decision between choosing a foreclosure or a shortsale will depend on their specific circumstances. Of course, before making that decision, it is important to thoroughly investigate both options and understand the differences between them.

In the previous chapter, we discussed the definition of a short sale and how it works. It is also important to understand foreclosures and how they work. What is a foreclosure? When a borrower fails to make their home mortgage payments on a regular basis, the property may be foreclosed upon, which means that the lender evicts the borrower, taking ownership of the property. These properties may be sold via real estate agent or at an auction.

Short sales offer an alternative to foreclosure in many instances, which may offer benefits to both the borrower and the creditor. Here is a closer look at the difference between a short sale and foreclosure, as well as how those differences affect homeowners, lenders and buyers.

Short Sales vs. Foreclosure Properties – When are They Used?

First, when comparing short sales vs. foreclosure properties, it is important to understand when both of these options are used. When it comes to foreclosures, they are generally used when the borrower on a mortgage has defaulted on their payments.

Although a short sale may be used when a borrower defaults on mortgage payments, it can be used in other situations as well. These transactions can also be used when borrowers think they will be unable to make future mortgage payments. Short sales may also be used if a homeowner owes more on the home loan than the home is currently worth. However, no matter the situation, a lender must agree to the transaction for it to move forward.

Next: Benefits of Short sales vs. Foreclosures