Short Sale vs Foreclosure

Difference Between Short Sale and Foreclosure

The major key difference between the short sale vs foreclosure is that Short sale is a situation in which the sale of real estate property which has been mortgaged to lien holders against the property on the failure of repaying the debt that is taken by the Debtor takes place, where the sale proceeds received from sale of property falls short to the actual debt taken by the debtor, whereas Foreclosure is a legal process of debtor forfeiting the rights on the property that is mortgaged as a result of failure of nonpayment of the outstanding debt taken, then the property goes for Foreclosure

The major key difference is that foreclosure initiates as soon as there is the default on the loan while for short sale to initiate when a borrower owes more than the market value of the mortgaged property and the lender agrees for same.


You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Short Sale vs Foreclosure (

  • A mortgage short sale can be defined as the sale of a property, by the borrower who has become financially distressed, for less than the outstanding balance due to the mortgage where the proceeds from the sale of the asset will be used by the lender to repay the same. The lender will then accept the less than full repayment of the mortgage loan (and the borrower will be released from the mortgage obligation) the reason for same being in order to avoid what would amount lead to larger losses for the creditor or the lender had it be to foreclose on that mortgage loan.
  • Foreclosure, on the other hand, is the legal process in which a lender will take control of the mortgaged property, also evicts the borrower or say the homeowner and will sell the mortgaged property after the borrower or the homeowner is not able to make full principal and interest on that principal payments on his or her mortgage loan, that was stipulated in the mortgage deed or the contract.

Short Sale vs Foreclosure Infographics

Let’s see the top differences between short sale vs foreclosure.


You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Short Sale vs Foreclosure (

Key Differences

The key differences are as follows –

Short Sale vs Foreclosure Comparative Table

Basis Short SaleForeclosure
Basic DefinitionA short sale is happening when a mortgage lender or the creditor allows the borrower or the owner to sell that mortgaged property for lesser than what’s owed on that mortgage. Property owners who attempt the step to initiate a short sale are usually those who are under the financial stress, and the market value of their mortgage property must have substantially declined, relative to their borrowed amount.A mortgage lender who is conducting a foreclosure will repossess the property that was mortgaged to collect for those unpaid debts. This will result in more liability and fees to the borrower or the owner compared to a short sale.
Fees and LiabilityComparatively fewer fees, penalties, and legal expenses and hence the liability than a foreclosure.As mentioned, this process proves to be more expensive due to high fees.
ControlThe borrower or the owner gets to stay in the mortgaged property and can retain a certain amount of control.Foreclosures will end with the eviction of the borrower or the owner, who exercises no control over the entire process.
Used when The borrower or the owner is not able to make those mortgage loan payments, owes more than the home’s current market value or say current worth, and the lender must agree.When the owner or the borrower defaults.
Methods to executeIt’s done through RealtorAuctioned at the Trustee Sale.
Impact on credit scoreDrops almost 50 – 150 credit points. Also, it can be listed on the credit report if the lender or the creditor will report the reduction in debt to credit reporting agencies.It impacts a lot and almost drops 200 – 400 credit points. Also, it remains on the credit report for almost seven years.


A foreclosure usually occurs when the borrower or the homeowner is behind the payments schedule on the mortgage loan that was used to purchase the mortgaged property. Foreclosure is something that no borrower or the homeowner wants to experience the same and, in most cases, the lack of payments on a housing loan is usually due to an unexpected dip in their finances or a change in the borrower or the owner’s circumstances.

However, there are some benefits for short sale that is if done rightly, it may not do as much as damage to the owner’s credit score as the foreclosure would and because of this, the borrowers won’t have to wait as long to buy another house as they would have if they had gone through the process of foreclosure. 

Recommended Articles

This has been a guide to the Short Sale vs Foreclosure. Here we discuss the top 6 differences between them along with infographics and comparative table. You may also have a look at the following articles –