The Difference Between a Short Sale and a Foreclosure

home for sale, foreclosed

When people buy a home, they expect its value will appreciate over time so they can sell it for far above the purchase price. But sometimes situations beyond their control force them to sell before that equity is realized. This is called a short sale:  Selling your home for less than the balance owed on your mortgage.

Short Sales vs. Foreclosures: Overview

A short sale is a voluntary process that you initiate with your lender and real estate agent in order to prevent foreclosure proceedings. You still own your home and are in full control of what happens next.

A foreclosure, on the other hand, is involuntary. When you’ve missed too many mortgage payments, your mortgage lender can evict you from your home and take over your deed. Foreclosure proceedings are virtually out of your control. You’re no longer behind the wheel, you’ve lost the brakes, and there’s no road up ahead.

In many cases, lenders will prefer to work with you in a short sale in order to avoid costly and labor-intensive foreclosure proceedings. Sure, short sales can have a long timeline, taking on average 90 to 120 days to close. But even a quick foreclosure can exceed 180 days. In some states this timeline can take 1 to 3 years!

Foreclosures can be a huge burden for lenders, but they pale in comparison to the long-term damage they inflict on the homeowner.

In a short sale situation, the homeowner may just be starting to be delinquent on their monthly loan payments. They may be paying late, paying only partial amounts, or missing one or two payments entirely. Foreclosure proceedings wouldn’t begin until the homeowner is at least 90 to 120 days late on making a payment. During this time, they will have received delinquency notices and perhaps have had some preliminary conversations with their bank about what their options are.

yellow house

If you’re “upside-down” on your mortgage and struggling to keep up with the payments, it’s in your best interests to avoid foreclosure at all costs

Let’s break down the differences between a short sale (sometimes called a “pre-foreclosure”) and a foreclosure, and the different consequences for the homeowner:

Short Sales

  • A short sale or pre-foreclosure is when you sell your home (with your bank’s approval) to a willing buyer for less than you owe on your mortgage.
  • Any outstanding mortgage debt is forgiven (most of the time).
  • Your credit score is moderately affected (50 to 100 points) by late or delinquent payments. Your score takes 12 – 24 months to recover.
  • After the house is sold, your Credit Report lists the mortgage as “paid” or “settled.”
  • You can usually purchase another home after 18 – 24 months.
  • You may be approved to buy another home for less than 10% down.
  • Your job status could be precarious if your employer requires a credit check. 


  • A foreclosure is when you default on mortgage payments and your bank evicts you and takes ownership of the deed.
  • If the bank sells your home for less than the outstanding debt, you are still responsible for paying that deficiency. In some states, the lender may sue you for the outstanding debt and garnish assets and wages. 
  • Your credit score is severely affected (250+ points), and takes 3 or more years of good spending habits to recover.
  • A foreclosure will remain on your Credit Report for 7 – 10 years, and remain permanently on county public record.
  • You may need to wait 5 – 7 years to qualify to buy another home.
  • You’ll be required to put a 10 – 20% down payment on a new home.
  • Security clearances and future employment options may be limited for positions in finance, government or law enforcement, plus all positions where a credit check is required.

Both short sales and foreclosures carry negative credit and tax consequences, but short sales are far less impactful and damaging.

If you suspect that your home is “underwater” and you live in the Washington, D.C. metro area, call Marc Dosik and the Fed City Team today to discuss your options for a short sale. Marc and his team of short sale specialists have rescued over 130 home owners from foreclosure proceedings. They work with your lender to sell your home and get the mortgage deficiency forgiven, all at no cost to you. They even negotiate with the lender to pay your relocation costs, giving you $3,000 or more cash-in-pocket to help you get back on your feet. 

Avoid foreclosure. Contact Marc Dosik today!


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Want to learn more about the short sale process?

Download our FREE ebook:  How to Sell Your House in a Short Sale. Get your copy today!


Disclaimer: Every homeowner’s situation is unique, and local, state and federal laws change regularly. As such, this information should not be considered as legal, tax, financial or investment advice. Consult a qualified professional before making any financial decisions.

About the Author
Marc Dosik
Marc is the Associate Broker and primary decision-maker for Fed City Team. He's lived in the Washington DC metro area all his life and has been a licensed broker since 1998. Marc knows and understands the DC area market and specializes in contracts, negotiation tactics, grant programs for home buyers, short sales and foreclosures, and 1031 Exchanges.

If you’re selling in, or relocating to the DC area, contact the Fed City Team today.