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Foreclosure vs. Short Sale: What's the Difference?

Edited by Aimie Carlson || By Janet White || Updated on November 25, 2023
. Foreclosure is when a lender seizes a property due to unpaid loan obligations, while a Short Sale occurs when a property is sold for less than the outstanding loan amount with lender's approval.

Key Differences

Foreclosure is a legal process wherein the lender takes control of a property because the borrower has defaulted on their loan payments. This action is the lender's way of recouping some of their losses. On the other hand, a Short Sale is an alternative to foreclosure. In a Short Sale, the lender allows the borrower to sell the property for less than the outstanding loan amount. It's an agreement between the lender and the borrower, often to prevent the long and costly foreclosure process.
When a Foreclosure occurs, the borrower loses all rights to the property, and the lender typically auctions off the property to recover the loan amount. The process can be lengthy and may harm the borrower's credit significantly. With a Short Sale, the borrower initiates the sale of the property, but the proceeds go to the lender. Even though the lender may not recoup the full loan amount, they might prefer a Short Sale because it's often faster and less expensive than foreclosing.
It's essential to understand that Foreclosure can be a forced action, where the lender takes over the property without the borrower's consent due to contract violations. In contrast, a Short Sale is typically a mutual agreement, where both the lender and borrower have come to terms with selling the property under its loan value to mitigate losses.
The impact on the borrower's credit score differs between a Foreclosure and a Short Sale. A Foreclosure can have a more significant negative effect on one's credit report than a Short Sale. However, neither option is ideal for borrowers looking to maintain a healthy credit profile. Both Foreclosure and Short Sale indicate financial distress, but the consequences and processes involved are distinctly different.

Comparison Chart


By lender due to loan default.
By borrower with lender's approval.


Legal seizure and auction of property.
Property is sold for less than the owed amount.

Impact on Credit

Significant negative impact.
Less damaging than foreclosure but still negative.


Borrower loses all rights to the property.
Borrower initiates sale, but proceeds go to the lender.

Recovery for Lender

Lender may not recover full loan amount.
Lender typically recovers less than owed but avoids foreclosure costs.

Foreclosure and Short Sale Definitions


Foreclosure results when a borrower defaults on a loan.
After several warnings, the Foreclosure process began.

Short Sale

Short Sale happens with lender approval to prevent foreclosure.
The bank agreed to a Short Sale, cutting their potential losses.


Foreclosure is the repossession of property by a lender.
The Johnsons faced Foreclosure after failing to renegotiate their loan terms.

Short Sale

A Short Sale is a mutual agreement between lender and borrower to sell a property at a loss.
The Smiths negotiated a Short Sale to avoid further credit damage.


Foreclosure is the legal seizure of a property for unpaid debts.
The bank proceeded with the Foreclosure due to missed mortgage payments.

Short Sale

Short Sale offers an alternative to foreclosure by selling the property for less than the loan.
Real estate agents specialized in Short Sale transactions during the recession.


Foreclosure entails the termination of a borrower's right to a property.
The threat of Foreclosure prompted many to seek financial counseling.

Short Sale

In a Short Sale, the property is sold below its mortgage value.
Many homeowners opted for a Short Sale during the housing crisis.


Foreclosure is the legal means for a lender to reclaim a property.
Many neighborhoods witnessed multiple Foreclosures during the economic downturn.

Short Sale

A Short Sale is selling property for less than the owed amount.
To avoid foreclosure, they considered a Short Sale.


The act of foreclosing, especially a legal proceeding by which a mortgage is foreclosed.


A property that has undergone foreclosure
Decided to purchase a foreclosure.


(legal) the proceeding, by a creditor, to regain property or other collateral following a default on mortgage payments


(psychoanalysis) The absence of a symbolic father for a fatherless child, as a cause for psychosis.


The act or process of foreclosing; a proceeding which bars or extinguishes a mortgager's right of redeeming a mortgaged estate.


The legal proceedings initiated by a creditor to repossess the collateral for loan that is in default


Is a Short Sale better than a Foreclosure for credit scores?

While both negatively impact credit, a Short Sale is generally less damaging than a Foreclosure.

Why would a lender agree to a Short Sale?

Lenders may agree to a Short Sale to avoid the costs and time of a Foreclosure process.

What triggers a Foreclosure?

Consistent failure to make loan or mortgage payments can lead to Foreclosure.

Can you buy a home after a Foreclosure?

Yes, but it may require waiting several years and rebuilding credit.

What are the tax implications of a Short Sale?

Forgiven debt from a Short Sale might be considered taxable income.

Who benefits more from a Foreclosure?

Lenders might recover more in a Foreclosure, but it's costlier and longer than a Short Sale.

How long does a Short Sale process take?

A Short Sale can take several months to over a year, depending on negotiations and market conditions.

Can you stop a Foreclosure once it starts?

Yes, by negotiating with the lender, paying owed amounts, or filing for bankruptcy.

Are there any fees in a Short Sale?

Yes, there can be fees such as realtor commissions, but they are usually taken from the sale proceeds.

Can a borrower profit from a Short Sale?

No, in a Short Sale, all proceeds go to the lender to offset the owed amount.

How long does a Foreclosure stay on a credit report?

A Foreclosure can stay on a credit report for seven years.

What are the consequences for the borrower in a Short Sale?

Besides a hit to credit, borrowers might face tax liabilities for the forgiven debt.

Who pays the remaining debt after Foreclosure?

If the Foreclosure sale doesn't cover the debt, lenders might pursue a deficiency judgment against the borrower.

Is it possible to negotiate during a Short Sale?

Yes, terms, price, and debt forgiveness can often be negotiated in a Short Sale.

Do all lenders allow for Short Sales?

No, the decision is at the lender's discretion based on their evaluation of potential loss.

Can you refinance to avoid Foreclosure?

Yes, if a borrower qualifies, refinancing can be a way to avoid Foreclosure.

Are Foreclosures public record?

Yes, Foreclosures are typically recorded as public records.

How does a Foreclosure start?

It starts when a borrower defaults, and the lender files a public default notice.

Is buying a Short Sale property a good idea?

It can be, but Short Sale properties are sold "as-is," and the process can be lengthy.

How does Foreclosure impact neighborhoods?

Foreclosures can reduce property values and increase vacancy rates in neighborhoods.
About Author
Written by
Janet White
Janet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie Carlson
Aimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.

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