Short Sale or Foreclosure – A Snapshot:

I f you are currently in a situation where you are wondering whether you should attempt a short-sale or allow your home to go into foreclosure, or even declare bankruptcy, there are many things to consider and a couple people you should consult.

Generally speaking a Short-Sale will not damage your credit as deeply or for as long as a foreclosure, and a bankruptcy does the most damage.  The difference between a short sale and a foreclosure is three years vs. ten and 80-120 points on your credit score.  And what about the debt? A foreclosure will almost always release you of the full debt as opposed to the short-sale which can leave you liable for the difference owed, this liability can follow you for up to 20 years and be attached to other properties you own, or purchase in the future.  When pursuing a short-sale it is always wise to request full satisfaction on the lien being sold short. If you are able to negotiate full satisfaction of your lien in a Short-Sale it is highly likely you will come out relatively unscathed. (by the way – Short-Sales are significantly less expensive for the lender than a foreclosure) Nevertheless as you consider your options it is wise to gather a team around you including but not limited to a: 1) Real Estate agent experienced in bank negotiations 2) a Tax Consultant 3) Real Estate Attorney and 4)Bankruptcy Attorney; numbers 3 and 4 may be the same person.

So, what’s the foreclosure timeline look like? You become officially late on a mortgage payment at 31 days.  At this point the bank will most likely send out a “Notice of Default” letter, this is also recorded at the County and becomes public information.  At 60 days if you have not cured the default the bank should file and send out a  “Notice of a Trustee Sale” and the auction date for the home is usually set 120 days out from the original due date of the first missed mortgage payment. On this notice you will see how far behind in payments you are, and most late fee’s and filing charges; this is the amount you need to pay to cure the default. At 110 days (10 days before the scheduled auction) this is your last opportunity to cure the loan.  To “cure” the loan means you are bringing it up to date at that point and paying all late fees and costs incurred by the lender. In the 10 days prior to the auction you can no longer cure the loan, but can pay off the entire debt in order to stop the sale and keep your house.  In this period a lender may still stay (put off) the auction date if an offer on your home is presented.  As a note of encouragement I have recently seen a major lender stay a foreclosure sale as a result of an offer, then reject the offer, present their bottom line and accept the new offer.  It is both my hope and strong belief that in the coming year we will witness more and more successful short-sales and a decline in the number of foreclosures. 

How about a Short-Sale, what’s that timeline look like? Well, you can start the Short-Sale process before you have even missed a payment. To do this you  have to show hardship and the lender has to agree to participate in a Short-Sale.  Like I said earlier, it is cheaper for a bank in most cases to work with a short sale versus taking a home in foreclosure; so banks have some incentive to be pro-active. A Short-Sale takes time, and more importantly lots of effort both on the sellers part, and the agents part. A seller must be willing to do their share of work in terms of gathering pertinent information to prove to the bank they are in hardship and will likely lose the house to foreclosure if they don’t act now. The agent will spend an inordinate amount of time with this information, and the bank on phone and in negotiation sessions. The Short-Sale process can take up to a year, depending on the bank, the home, the Seller and the agent. It can also happen in as short as 60 days or so. The upside is that if you have an agent who is familiar with the process, and a bank that is willing to work through the process, and a little bit to today’s St. Pattys Day Irish Luck, you can conceivable come out of a short sale with no debt, and no damage to your credit score. This is the best case scenario, and it is more likely that some damage to credit will be done, and it’s possible that some debt will follow you, but this is better by far in most cases than bankruptcy or foreclosure.


  1. Eaton says:

    Good points you’ve made. I will be back to read more again!