When it comes to managing financial troubles with your home, you might hear terms like “short sale” and “foreclosure.” But what do these really mean? Let’s break it down in a way that makes sense.
The Basics
Short Sale: Picture this—you’re selling a car, but it’s worth less than what you owe on it. You negotiate with your lender to accept the sale price as full payment, even though it’s short of the amount you still owe. That’s a short sale in a nutshell. In real estate, a short sale happens when the seller owes more on their mortgage than the home’s market value, and they need the lender’s permission to sell the home for less than the remaining loan balance.
Foreclosure: Now, imagine you’ve bought that car and can no longer afford the payments. You stop paying, and the bank takes it back. This is similar to a foreclosure. If you fail to make mortgage payments, the lender can foreclose on your home, meaning they take ownership of it through a legal process to recover the unpaid loan amount. It’s like the bank repossessing your car when you stop making payments.
Key Differences and Considerations
- Impact on Credit Score: Both short sales and foreclosures impact your credit score, but a foreclosure typically has a more severe effect. It’s like being late on payments versus a full-on repossession—both hurt, but one leaves a deeper mark.
- Emotional and Financial Toll: A short sale can be less stressful because it’s a negotiated sale where you can avoid the more drastic consequences of foreclosure. However, you might still be liable for the difference between the sale price and the remaining loan balance, though sometimes this debt can be forgiven.
- Future Mortgage Opportunities: After a foreclosure, it might take longer to get approved for a new mortgage compared to a short sale. It’s akin to having a harder time getting a new car loan after a repossession compared to a negotiated sale.
- Negotiation Room: In a short sale, you have some control over the sale terms and might get a better deal. With foreclosure, the process is often more rigid, and the lender calls the shots.
Understanding these differences can help you navigate your options if you’re facing financial difficulties. It’s all about knowing what’s at stake and making the best choice for your situation.
If you’re in Virginia and need help or have further questions you may visit Virginia Legal Aid
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FAQs
In the state of Virginia:
When may my mortgage company foreclose on my home?
- Your Deed of Trust will tell you clearly what terms the creditor must follow before it starts foreclosure. This includes such important things as how many days advance notice the creditor must give you before starting foreclosure.
How Does a Foreclosure Work?
- If your mortgage is secured by a Deed of Trust, the foreclosure will be done by a Trustee.
- You will probably receive at least one letter from the Trustee, so that you will know who it is.
- You will also receive a copy of the foreclosure notice that will be advertised in a local newspaper. It will tell you:
- Who the Trustee is
- Where the foreclosure sale will be held
- When it will take place
What Are the Requirements That Must Be Met Before a Foreclosure Sale is Allowed?
- The Trustee must give you written notice, by certified or registered mail, at least 14 days before the sale is to take place. The notice must state:
- The date
- The time
- The place of the sale
- The Trustee must also advertise the foreclosure sale in a local newspaper of general circulation:
- The number of times depends on the Deed of Trust.
- If the Deed of Trust doesn’t specify how many times, the Virginia Code states the number of times (§55-59.2 Code of Virginia):
- At least once a week for four successive weeks, or
- At least once a day for five consecutive days if the property is located in a city or neighboring county
- The foreclosure sale may not take place until:
- At least 8 days after the first advertisement
- It must take place within at least 30 days of the last ad
- The Trustee sells your property, usually through auction at the courthouse.
Will I get any of my money back after the foreclosure sale in Virginia?
- It is very unlikely that you will get any money – usually, the sale is for less than the value of the home and you will still owe money.
When do I have to move if my house is sold at a foreclosure sale in Virginia?
- You do not have to move until the new owner gives you notice to move in writing.
Resource: Virginia Legal Aid
Who benefits from a short sale?
In a short sale, several parties can benefit:
- Homeowners: They can avoid foreclosure and its negative impact on their credit score. It can also help them move on from a property they can no longer afford.
- Lenders: Although they typically don’t recover the full loan amount, they can avoid the costs and lengthy process of foreclosure.
- Buyers: They may acquire a property at a discounted price, though the process can be complicated.
