Confused about the difference between short sales vs. foreclosure? You are not alone. Foreclosures and short sales have become headline news as the industry attempts to find solutions for struggling homeowners.

Similarities and differences exist with short sales vs. foreclosure. Neither option allows borrowers to remain in their home. Both can have detrimental affects against credit ratings; leaving borrowers owing mountains of money, or releasing them from financial bondage. It’s all a matter of how the deal is constructed.

Lender short sales present borrowers with the opportunity to sell their property for less than is owed on their mortgage note. This is the preferred method because it allows borrowers to avoid foreclosure and prevent bankruptcy.

Homeowners that are delinquent on their mortgage note, but not yet in foreclosure, must contact their lender’s loss mitigation department to obtain short sale approval. This is no easy task, so be prepared to spend a considerable amount of time on the phone and writing letters. While this can be frustrating and stressful, persistence is the key to success. It can also save borrowers a boatload of money in the long run.

An assigned loss mitigator will work with property owners throughout the process. Mitigators do not approve or disapprove short sale requests. Instead, they handle administrative responsibilities and provide information regarding borrowers’ financial status to the lender.

Obtaining short sale approval can take several months. Borrowers must undergo a financial audit by submitting a short sale packet. Loss mitigators generally require a detailed list of income and expenses, bank statements, payroll records and previous years’ tax returns.

Most borrowers require assistance from a lawyer or realty professional to negotiate short sales. At minimum, homeowners should hire a real estate attorney to review short sale contracts and explain any legalese they do not understand.

It is important to realize two types of short sales exist. The preferred method is known as Payment in Full without Pursuit of Deficiency Judgment. This legal contract releases borrowers from any deficiency amount between the sale price and loan balance. The second type is a Deficiency Judgment which holds borrowers’ responsible for the difference between the purchase amount and loan balance.

Foreclosure can be a lengthy process; taking upwards of twelve months to complete. The first step requires the lender to record a Lis Pendens through the court. Often referred to as preforeclosure, Lis Pendens grants borrowers the opportunity to save their home from foreclosure by entering into a loan modification.

Loan modifications are generally reserved for borrowers who have encountered a temporary financial setback. When mortgage notes are modified the terms are permanently altered. In essence, borrowers are taking out a new loan.

When borrowers do not qualify for modified loans or short sales the lender has no option but to foreclose on the property. Once property is foreclosed it is placed for sale through public auction. Banks can issue deficiency judgments against foreclosure deficiencies.

A solution to prevent foreclosure judgments is to request a Deed in Lieu of Foreclosure short sale. Similar to Payment in Full short sales, a deed in lieu releases homeowners from payment of the foreclosure deficiency amount.

Author Bio: Real estate investor, Simon Volkov is considered an expert on short sales vs. foreclosure. He has helped hundreds of struggling homeowners obtain short sale approval through his unique “We Buy Houses” program. Learn more by visiting www.SimonVolkov.com today.

Category: Finances
Keywords: short sales vs foreclosure,short sales,loss mitigation,short sale approval,foreclosure,deed in lieu