In these economic times, you may hear the words short sale and foreclosure and ask what the difference is and why is that important to me. The short answer is there is a big difference and it could mean a lot to you.
SHORT SALE
A short sale is where you negotiate with the bank to sell your property and give the proceeds to the bank. If you sold the property for less than your note to the bank, the bank will forgive the remaining debt. For example, you sell a property for $50,000 that you are indebted to the bank for $100,000. In a true short sale the bank forgives the remaining $50,000 that you owe the bank on the property.
FORECLOSURE SALE
A foreclosure is the sale of the property on the courthouse steps. When you default on your note to the bank, the bank can either sue you on the note or take back the property in which it is has a security interest. In a foreclosure sale, the bank sells your property on the courthouse steps but can sue you for the difference between what you owed on the note and the sale price on the courthouse steps. For example, you sell a property for $50,000 that you are indebted to the bank for $100,000. In a foreclosure sale the bank has 30 days to report the foreclosure sale and request a hearing with the court to get a deficiency judgment against you for the remaining $50,000 that you owe the bank on the property.
WHY DOES THE DIFFERENCE MATTER TO ME?
A short sale does not affect your credit in the same way the foreclosure does as the bank is forgiving your debt. Please be aware, however, that the forgiveness is income to you and the IRS will expect to be paid taxes on the debt forgiveness you otherwise would have owed. A foreclosure, on the other hand, can have a very negative impact on your credit as you failed to pay the debt in full and the bank may sue you for the deficiency. Whether the bank will do this or not, is dependent on whether they think there are additional funds that may be obtained from the delinquent borrower. If there are not, the bank will likely leave it alone.
If you are falling behind on your mortgage payments on your property you are almost always better off contacting the bank and being proactive as opposed to doing nothing and hoping for the best.
As always, your trusted resource for practical legal advice.
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- Georgia Bank Failures: Discount Debt Refinance Opportunity?, guest post by Justin Daniels, Atlanta Real Estate Attorney
- Criminal Prosecution for Contractors, guest post by Justin Daniels, Atlanta Real Estate Attorney
- Looking to Sell Your Atlanta Business? Contact an Atlanta Real Estate Attorney, guest post by Justin Daniels
