How does a short sale differ from foreclosure?

A short sale involves selling a home for less than what is owed on the mortgage, which typically happens when the homeowner is facing financial difficulties and cannot continue making mortgage payments. In a short sale, the lender agrees to accept a sale price that is lower than the total amount owed on the mortgage, allowing the homeowner to sell the property and avoid the lengthy and damaging process of foreclosure.

In contrast, foreclosure is a legal process where the lender takes possession of the property due to the borrower defaulting on their mortgage payments. Once a property is foreclosed, it is typically sold at auction, often for whatever amount the market will bear, which can also be below the amount owed on the mortgage but does not involve the seller's consent or cooperation.

Understanding the nuances between a short sale and foreclosure is vital because each has different implications for the homeowner's credit and future borrowing capabilities, as well as distinct processes and outcomes in terms of property ownership.