buy foreclosure home los angeles

A Foreclosure Or Short Sale – Which Will You Prefer For Your House?

Though owning a home is a dream for many, becoming a homeowner especially in Los Angeles is not easy. You have to make a lot of sacrifices, save a lot of money, and maintain a transparent credit history. In this economy, very few people can buy a house with their savings. And then what happened? We look for a financing option, with the hope of paying the amount back in the form of installments.

The best way to finance a new home is to opt for a mortgage loan. A mortgage is a loan taken against a house that acts as the collateral. You will not become the sole owner of the house until you pay the debt amount, along with recurring interest. If you lose the grip over your mortgage payments, your dream can turn into a nightmare.

What if you lose your job, or the markup rates skyrocket overnight, or you might burden yourself with excessive debts? The deteriorating real estate conditions, coupled with the economic downturn forcing homeowners to plunge into a distressing process of losing homes. Are you among those who are struggling to pay the mortgage payments? Well, here is something that will set the path straight for you. You have two choices either go for Foreclosure or Short Sale.

Yes, this is what we are talking about in this two-minute guide. It will be beneficial for those who availed the house loan and now unable to pay the installments.

What If I Can’t Pay My Mortgage Anymore?

If you are unable to pay your mortgage payments then you have two options:

  • Foreclosure
  • Short Sale

Here is a catch! The second option is not for everyone. At times you have no other option left but to face the Foreclosure.

In this article, you will get to know which option is right for you. We will make sure that we give you 360-view of both the options with probable consequences.

So, let’s discuss the advantages and disadvantages of both Foreclosure and Short Sale. Plus, we will also explain how and when you can opt either of them.

But first, let’s get some basics!

What is Foreclosure?

It is a legal process in which a lender takes control of your (collateral) property if you failed to pay the debt. They lender has the right to evict you and sell the property to recover the debt amount.

In the legal terms it can be stated as:

Based on a mortgage or deed of trust, the foreclosure is a right given to use a property as collateral in case the borrower fails to uphold the repayment obligation.

As soon as the loan becomes delinquent, the foreclosure process begins. First of all, a borrower will receive a notice from lender about the foreclosure. The lender will give a grace period of up to 90 days to the borrower to clear the dues. Foreclosure occurs as the final step after a long process.

Each state has different regulations to deal with the foreclosure. The basic process of foreclosure includes steps like:

  • Public-posting of notices
  • Options for the homeowner to bring the loan current and avoid foreclosure
  • Setting the timeline and process for selling the mortgaged property

If you own a home in states like Illinois, Florida, and New York, then it will take, from the borrower’s first, missed payment to the lender’s (mostly the bank) sale of the home, 480 to 700 days. While in states like California, Arizona, Texas, Georgia, it follows a non-judicial foreclosure, which makes the process faster and does not go through the courts unless any party sues the other.

There are two types of Foreclosure – a Judicial Foreclosure and a State Foreclosure.

Why Foreclosure Occurs?

The reasons why a Foreclosure of a property may occur include:

  • Being fired, laid-off, or quitting the Job
  • Unable to work due to medical conditions in case of a disease or bad accident
  • Most couple going through divorce opt for Foreclosure of their property intentionally
  • An excessive amount of debt
  • Job transfer to another state or country for a longer period of time
  • Interest rates increased overnight
  • Inflation causes a high cost of living and unemployment
  • Property maintenance issues which the owner cannot afford

Now, let’s have a quick preview on how a foreclosure process works.

How does the Foreclosure Process work?

As mentioned earlier, the foreclosure process varies from state to state. In states where mortgages are used, homeowners can stay in the property for almost a year. But, in states where trust deeds are regulated, a homeowner has four months to evict the property.

In most states, it takes three due installments to declare the borrower a defaulter. It also depends on the contract that the lender and the borrower have mutually agreed. Once you cross the threshold of your due payments, you will receive a “Demand Letter” requesting payment within 30 days. If by the end of the 30 days, you still have not made the payments, your loan will be considered as a default. And you will refer to the lender’s attorney. This is where the pre-closure process starts. Read the notice carefully and consult with an attorney or a U.S. Department of Housing and Urban Development (HUD) housing counselor.

As mentioned earlier, there are two types of foreclosures.

In judicial foreclosure, the lender must bring legal action against the borrower in the courts to foreclose the property. This process takes longer, as there are 30 to 90 days between each step. In deed-foreclosure, lenders can foreclose the property based on the “power of sale” clause in the agreements. There is no judge involved in the process.

For the last time, lender offers an opportunity to the borrower to pay off the entire debt at once. This can only be feasible if you manage to refinance the property or find a substantial source of money.

If you are still unable to pay the debt, the property will foreclose to repay the remaining debt amount.

Consequences of Foreclosure

If a property fails to sell at a foreclosure auction, lenders will take ownership of the property. One of the important thing is that a foreclosure remains on credit report for up to seven years.

FAQ: Is Foreclosure always the last resort?

No, in some cases, lenders give reliefs to your repayment schedule so that you can afford the payments and keep the ownership. This situation is called as mortgage modification or a special forbearance.

What is Short Sale?

It is a process where a borrower sell the mortgage property for less than the outstanding mortgage amount. The sale proceeds will then be used to repay the outstanding debt. Often, the lender accepts the less-than-full mortgage loan payment, and the borrower is also released from the mortgage obligation.

The short sale process is to avoid the larger losses for the lender if the property would be foreclosed.

Short sale process only occurs when the mortgage company agrees to the short sale. The borrowers then use the payment to pay off all or a portion of the debt.

Just like the foreclosure, short selling a property also badly affect the borrowers’ credit history. Based on that fact, a borrower can not avail another loan for several years.

How does the Short Sale Process work?

In a short sale process, the borrower needs to seek permission from the lender to sell the property in less amount than the outstanding debt. Once the borrower received the consent, he/she will find an agent and puts the house on the market. The price is mostly at a substantial discount. The process aims to recover the amount that a homeowner owes to the lender. This process saves lender the expense of a foreclosure suit and the possible long-term cost of owning a hard-to-sell property. A borrower saves the amount that he/she might need to pay as an interest in the future.

Which one is better – A Foreclosure or Short Sale?

Foreclosure and Short Sale both have consequences. Both processes need the homeowner to give up on the ownership of the property. But that is the only similarity between them. Now, it is time to decide which one is better for you. Is it a short sale or foreclosure?

Pros and Cons of Short Sale Process


  • In short sales, both the borrower and lender save money by selling the property on less than the market price.
  • In a short sale process, a lender saves the cost of documentation on foreclosure, and a borrower saves the amount of interest on the debt.
  • Although a short sale hurts your credit history, but with certain restrictions, you can be eligible to buy another home immediately.
  • A short sale property can be a good deal for bargain house hunters.
  • A short sale proceed much like any other sales. A buyers can seek for a mortgage facility and have the opportunity to get the inspection of the property.
  • In a short sale process, you can negotiate the costs like repairs, wire transfers, and closing costs with the lender.


  • It is a very lengthy process that may take up to a year to complete.

Pros and Cons of Foreclosure


  • The only advantage of a foreclosure process is that it takes only a few months to close the deal


  • The biggest disadvantage of a foreclosure process is that it occurs without the will of the homeowner
  • A foreclosure is a big dent in your credit history. A person who recently gone through a foreclosure cannot buy another home for a minimum of 5 years. The foreclosure report remains in your credit history for seven years.
  • Foreclosure is an expensive process where the lender will have to pay the foreclosure processing charges, auction expense and documentation fees.
  • You can only purchase the Foreclosure properties with cash. You cannot apply for a financing facility to buy a foreclosed home.
  • The dealing of a Foreclosed property is done at the courthouse. Therefore, you can’t seek an inspection of structural problems, mold, infestations, or other issues with the house.
  • Foreclosed properties are hard-to-sell.


Is paying your mortgage installment becomes a challenge for you? Well, the smartest step is to talk to your lender and discuss the possible options. Chances are, your lender may give you relaxation on your payment schedule. Or, the lender can offer you a better plan that suits your current situation and the laws in the state.

With a brief comparison of both the process, we have concluded that both the process are not healthy for your financial stability. No one would want to give up on their homes. But if you reach this stage where you have either short sale option available to protect yourself from foreclosure, then go for it.


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