For the past few years, the United States has experienced a sharp increase in foreclosures. In fact, July 2025 showed the steepest annual increase in years, and the first six months of 2025 have shown a significant year-over-year jump in foreclosure filings. This spike is primarily tied to the unclogging of distressed properties' pipeline as Covid-related moratoriums have been lifted. As real estate prices soared over the past several years, many homeowners purchased homes at the peak of their qualifying range. As prices begin to soften, many people could find themselves underwater and unable to sell unless they can do so with a short sale. This scenario makes the topic of a short sale vs foreclosure extremely pertinent for homeowners.
When a homeowner sells the property for an amount significantly less than what is owed on the mortgage, it is called a short sale. For instance, suppose you owe $300,000 on a home, but its current market value is only $250,000. In order to sell the house, you need the bank to agree to lower its lien on the house to $250,000 minus the costs associated with the sale. There will still be a deficiency of at least $50,000 after the sale. Typically, homeowners negotiate for the bank to forgive this deficiency as part of the short sale transaction.
Foreclosure in Perspective
On the other hand, a foreclosure is the process by which the bank auctions the property and applies any proceeds first to paying off its loan. Often, the proceeds are not enough to cover the loan, and the homeowner may still owe a deficiency balance to the bank. However, if the auction price is higher than the loan balance, the surplus usually goes to the homeowner.
Short Sale vs Foreclosure: What's the Difference?
The main distinction between a short sale and foreclosure is that a short sale is voluntary, while a foreclosure is involuntary. In the short sale process, the homeowner is actively involved in selling the home and negotiating the loan's deficiency balance. On the flip side, foreclosure inflicts more severe damage to the credit report. However, it's important to remember that a short sale is also considered a default on the mortgage and will severely damage the credit report.
Causes and Duration
A foreclosure timeline can vary from state to state. In Illinois, a typical foreclosure proceeding can last up to a year, passing through the court system. However, in Georgia, foreclosures are non-judicial. Once the mortgage is past due, the mortgage company can serve notice of sale, and the process can be as short as 60 days.
Short sale vs foreclosure: How long does it take to recover financially?
If you are struggling to make your monthly mortgage payment, you may we wondering about the longer-term impacts of short sale compared to foreclosure. Simply put, recovering financially from a short sale can happen quicker and easier than a foreclosure. Depending on your situation, you may be able to obtain a new mortgage in two to four years -- compared to the typical seven year waiting period following a foreclosure. There are even some programs that allow for a new FHA loan in a year; however, this is not always the case so you should plan accordingly.
The overall impact on your credit score is also less severe with a short sale. However, if you do face foreclosure, it’s important to know that you can take steps to recover more quickly including showing a pattern of responsible credit use, on-time payments, and low credit card balances. If you do not have credit cards, you can consider taking out secured credit cards, which can help you improve your credit score and repair your credit history.
When is the right time to call a foreclosure attorney for help?
If you are worried about foreclosure or are struggling to make your monthly mortgage payment, you should talk to an attorney as quickly as possible. In fact, the sooner the better. The sooner you act, the more options you may have.
If you have already missed a payment and anticipate that you will not be able to continue making your payments, an attorney can make sure you understand your options. If you have received a notice of default or if your lender is not willing to work with you, an attorney can help.
If you are already in the midst of a foreclosure, it’s not too late to get help. Even if your lender has already initiated the foreclosure, an attorney may be able to help you challenge the foreclosure, negotiate a loan modification, or halt the foreclosure by filing bankruptcy.
The longer you wait, the fewer options you may have but it’s never too late to seek legal advice.
Debtstoppers: Aiding in Preventing Short Sales and Foreclosures
If you've fallen behind on your mortgage but are now able to make the current payments, Debtstoppers can file a Chapter 13 on your behalf and halt the foreclosure immediately. You can then start paying the current mortgage payments while we construct a plan to repay the arrears and eliminate your other debts in an affordable manner. The arrears can be paid back over five years without any interest. We also aim to reduce your car payments and any other debts you have to give you a complete fresh start.
For multifamily homes or rentals, we may be able to reduce the mortgage to the home's value if it is underwater. If you're struggling to afford your mortgage, speak to one of our attorneys for free today. You'll be glad you did.
In conclusion, understanding the concepts of short sale vs foreclosure is crucial for homeowners facing financial distress. Making an informed decision could save you from unnecessary financial and emotional burdens. So, carefully weigh your options and seek professional help if necessary.
