Let’s take a closer look at what these things are, their differences, and which is the better option for any homeowner depending on their situation and timeline.
No short sale may happen without the blessing of the lender. Once the short sale is approved by the lender and the property is sold, all proceeds from the sale go to the lender. The homeowner gets nothing and ideally will be free of any financial obligations for the home.
However, one thing to watch out for is the so-called “deficiency judgment”, which the lender can file against the homeowner to make up for the loss. While many states outlaw this practice, it’s critical that you read over your paperwork or ask about it to ensure you won’t have any personal liability.
After receiving the notice of default, the borrower enters into what’s known as the “pre-foreclosure period”, which can last anywhere from 30 to 120 days. During this time, you’ll have the opportunity to work with your lender to avoid foreclosure, either through any of the following:
Modifying the mortgage terms and reducing your monthly payments;
Selling the home through short sale or deed in lieu of foreclosure.
If the debt isn’t resolved by the end of the pre-foreclosure period, the lender will step in and foreclose on the home. The homeowner will be evicted and a foreclosure auction will be scheduled to sell the house to a third party. If the property isn’t sold at auction, the lender becomes the owner and it’s then considered a bank-owned or real estate-owned property.
