Foreclosure vs Short Sale

Written by  //  March 4, 2013  //  CAREER & MONEY  // 


Oct 2011
By Monique Sheffield

SRG-Monique1I am often asked if there is a benefit to selling a home as a foreclosure versus a short sale. The answer is a resounding YES!!!! Before outlining the benefits of selling a home as a short sale, allow me to share the definition of the two.

Foreclosure: Occurs when the bank repossesses the property from the seller as a result of the seller’s failed obligation to repay the debt owed on the property. There are essentially three types of foreclosures.

1. The first type is a bank foreclosure, these are also known as REO (real estate owned) properties.

2. The second type is a VA (U.S. Department of Veterans Affairs) foreclosure.

3. The third type is HUD (U.S. Department of Housing and Urban Development) homes. Yes, HUD properties are foreclosures too.

What distinguishes a bank‐owned property from a VA property from a HUD property? The answer is simple: if the buyer secured conventional financing then the foreclosure type will be bank owned or REO property. VA foreclosures are homes where the financing was guaranteed by the Department of Veterans Affairs, and HUD properties are foreclosures owned by the government that were secured with FHA (Federal Housing Administration) financing.

Short Sale: A short sale is a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan. For example, if you have a loan balance of $100,000 and a buyer comes along and offers to purchase the home for $75,000, then you will be “short” $25,000 on your debt that is owed to the bank. It is important to note that if there are multiple lien holders such as a first and second mortgage, both lenders must agree to the short sale.

Now, let’s look at a side‐by‐side comparison of homeowner consequences as it relates to Foreclosure v. Short Sale

These are just a few consequences associated with foreclosures and short sales. There are tax implications involved in both foreclosures and short sales, so please consult a licensed real estate agent and an accountant with respect to your particular situation.

Monique Sheffield2Monique is the co-owner and managing broker of Sheffield Realty Group. She also holds the CDPE (Certified Distressed Property Expert) designation as well as the CREOS (Certified Real Estate Owned Specialist) designation. If you would like additional information on this article or have a real estate related question, email Monique at


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