Foreclosure vs. Short Sale: What’s the Difference?

foreclosure vs. short sale

If you are falling behind on your mortgage payments, these are both terms you may start to hear. Neither are very favorable outcomes for a homeowner, but they are results that can happen if you are defaulting on your home loan. Let’s look at the differences between the two, as well as some alternate solutions to consider.


In the simplest of terms, a foreclosure happens when a homeowner falls so far behind that the bank/lender has no other choice but to seize the property. The bank will sell the house to recoup as much as they can. If there are extra proceeds left over at the end of the sale because the property has good equity, the homeowner may be able to get some money back. This is rare, but can happen. The bank can claim what is still owed on the mortgage loan plus cover any legal and real estate fees they have accrued to seize and sell the property.

In general, a foreclosure means you are going to lose your home and you have no say in the sale of the property. If the lender forecloses and sells for less than you still owe, they may opt to sue you for the “deficiency” (the amount still owed) or they may take what they can get and move on.

Short Sale

A short sale is a pre-foreclosure solution that is generally a better option than a foreclosure if the homeowner and property qualify. The homeowner must submit an application to the lender to be approved for a short sale. Then, the homeowner is allowed to sell the property, generally for an amount less than they still owe on the mortgage loan. One major catch is that to qualify for a short sale, the property must be worth less than what is still owed on the home loan. The seller must also be able to prove financial hardship as a reason why they cannot keep up with mortgage payments.

Short sales were very common after the real estate market crash of 2008. Many homeowners had houses that were worth much less than they still owed and were dealing with financial distress because of a struggling economic recession in the years that followed. They are less common now because home prices have risen so much in recent years. It’s rare for properties to be worth less than the original mortgage. Still, short sales can happen from time to time.

Alternative Solutions

Generally speaking, both foreclosures and short sales should be avoided if at all possible. Neither will provide a great outcome for the homeowner. Breaking even might be your best hope. Plus, your credit score will take a significant hit and you may find it difficult to buy a new home in the future.

The good news is home prices are high and it is a seller’s real estate market. If you are starting to fall behind on mortgage payments and worried at all about foreclosure, you should take the steps now to sell your house before it’s too late. You can sell it on the open market to try and get the highest offer, or you can sell quickly to a cash real estate investor. A cash home sale is fast, easy and safe, as long as you work with a trustworthy buyer or home buying company like PropertyLark. You may be able to recover what you owe on your mortgage loan before you fall too far behind on payments. You may even come out ahead if you have strong home equity built up in the property.

The important thing to remember is not to wait too long. Explore your options as soon as possible and be prepared to make quick home selling decisions. Some investors may even work with you to find alternative financing/selling solutions that allow you to stay in your home or retain some ownership in the property.

To get a fair cash offer for your house or to look into other home selling options, contact PropertyLark today. To get started, please fill out the contact form to the right. Tell us a little about you and your property and we’ll get back to you within 24 hours!