The primary difference between short sale vs foreclosure in Virginia lies in how the property is handled. In a foreclosure, the lender repossesses the property and sells it to recover losses, or a third party purchases it at a foreclosure sale. In contrast, a short sale vs foreclosure scenario in Virginia involves a negotiation between the borrower and lender to sell the property, aiming to recover as much as possible to pay down the remaining balance owed to the lender.
Table Of Contents
- What Is A Foreclosure In Virgnia
- What Is A Short Sale?
- Short Sale vs Foreclosure – Your Options
- FAQs
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Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties.
What Is A Foreclosure In Virginia?
“In simple terms, a foreclosure occurs when a homeowner in Virginia can’t make their mortgage payments, leading the bank to repossess the property. If you stop paying your mortgage, the lender has the right to foreclose on your home to recover the loan amount. When a borrower in Virginia fails to make payments, the lender takes ownership of the property, evicts the borrower, and sells the home, either at auction or through a real estate agent. Understanding the difference between a Short Sale vs. Foreclosure is important, as both significantly impact a borrower’s credit, but foreclosure, in particular, can make it challenging to secure another mortgage for years.”
Under Virginia state law, homeowners who fall behind on mortgage payments generally receive just one official notice—a notice of sale—before their home is foreclosed. However, federal law typically prevents the bank from selling your property immediately after a missed payment, requiring a 120-day waiting period before initiating foreclosure. Additionally, federal law often mandates that the bank contact you before the foreclosure process begins to discuss alternatives. You may be able to avoid losing your home by paying the overdue amount or qualifying for options like a loan modification.
Depending on the state that you live in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the mortgage’s outstanding balance. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.
“Short sales are appealing alternatives to foreclosure because they offer you more control over the process, including the ability to choose the highest offer, which can help reduce your liability. When considering a Short Sale vs. Foreclosure in Virginia, it’s important to note that short sales are less damaging to your credit, allowing you to qualify for another loan within two years or less. In contrast, a foreclosure can keep you out of the property market for 7 to 10 years. Understanding the differences between short sales and foreclosures in Virginia is crucial for making informed decisions.”
Requirements to Qualify for a Short Sale
- Show a hardship that gives you a reason to sell and prevents you from paying the entire loan
- Sell the property in a bone fide arms-length transaction (not to a relative or family member)
- Sell for a fair price
- Apply and qualify
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Virginia house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Northern Virginia House Buyers to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.
Give us a call anytime at 571-470-7154 or
fill out the form on this website today! >>
Conclusion:
“In conclusion, understanding the differences between short sales and foreclosures in Virginia is essential for homeowners facing financial difficulties. While both options can impact your credit, a short sale generally offers a more controlled process and less severe long-term consequences compared to foreclosure. By exploring all available options and working closely with your lender, you can make an informed decision that best suits your situation. Remember, if you’re struggling to keep up with mortgage payments, consider reaching out to a trusted real estate buyer for a quick, all-cash offer on your home.”
FAQ – Short Sale vs. Foreclosure: What’s The Difference in Virginia
1. What is the main difference between a short sale and a foreclosure in Virginia?
Answer: The main difference lies in how the property is handled. In a foreclosure, the lender repossesses the property and sells it, either at auction or through a real estate agent, to recover losses. In contrast, a short sale involves a negotiation between the borrower and lender to sell the property for less than what is owed on the mortgage, aiming to minimize the loss for both parties.
2. How does a foreclosure impact a homeowner’s credit compared to a short sale?
Answer: A foreclosure typically has a much more severe impact on a homeowner’s credit, potentially lowering their credit score by 300 or more points and making it difficult to qualify for another mortgage for 7 to 10 years. On the other hand, a short sale may only reduce the credit score by around 100 points, and homeowners may be eligible for a new loan within two years or less.
3. Can I avoid foreclosure by opting for a short sale in Virginia?
Answer: Yes, a short sale can be a viable alternative to foreclosure. It allows you to sell your property for less than the amount owed on your mortgage, with the lender’s approval. This process can help you avoid the severe consequences of foreclosure, such as a significant credit score drop and difficulty securing future loans.
4. What are the legal requirements to qualify for a short sale in Virginia?
Answer: To qualify for a short sale in Virginia, you must demonstrate financial hardship that prevents you from paying the full loan amount, sell the property in a legitimate arms-length transaction (not to a relative), and obtain approval from all parties with a financial interest in the property. The sale must also be at a fair market price.
5. How long does it take to complete a short sale in Virginia?
Answer: The duration of a short sale in Virginia can vary, but it generally takes longer than a traditional home sale. This is because multiple lenders or lien holders may need to agree on the terms of the sale. The process can take several months, depending on the complexity of the negotiations.
6. What should I do if my lender is not willing to work with me on a short sale?
Answer: If your lender is not cooperative in pursuing a short sale, you may need to explore other options, such as selling your house quickly to a real estate buyer for cash. This could help you avoid foreclosure and minimize damage to your credit. If all else fails, foreclosure may be the last resort, but it is generally the least favorable option due to its long-term negative impact on your financial situation.
Let me know if you need any further adjustments or additional questions!