What is a "Short Sale"? What is Foreclosure?

What is a "Short Sale"?

A "short sale" is a situation where a property owner/seller is trying to sell a property where the sales proceeds do not pay off the existing mortgage(s). The owner/seller has no equity. The term "short sale" or "short pay" refers to a process whereby the mortgage company must agree to a reduced payoff for the sale to take place. All the costs of the sale, the escrow/title fees, transfer taxes, commissions, property tax prorations, etc. must be covered and the seller receives nothing (except debt relief.)

What is Foreclosure?

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:
1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).