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Foreclosure short sale and the two types of foreclosures

Apr 10, 2008
When you are in default or in the verge of default in paying your mortgage, you have two options to choose from: foreclosure or short sale. In some places within California there are two types of foreclosures, judicial foreclosure and non-judicial foreclosure.

It's best that you consult a real estate lawyer or a tax accountant before making any life changing decisions. But in the meantime let me tell you what I know about foreclosure short sale. I'll explain the differences between short sale, non-judicial foreclosure and judicial foreclosure.

Let's start with short sale. Short sale is an alternative to foreclosures. It can happen only if your lender agrees and when the value of your house is less than your mortgage. Let's say Matt has a $150,000 mortgage but his house is only worth $60,000 if we calculate using current standards, then he's qualified for a short sale. Just remember that a short sale is not a money making option. You will get zero money and zero equity because all of the money from the sale will be used to pay off your lenders.

Aside from short sales you can also opt to a foreclosure. As I said earlier there are two kinds of foreclosures, judicial and non-judicial foreclosure. Let's discuss non-judicial foreclosure first. With non-judicial foreclosure your lender (most likely your lender's agents) will act as a trustee and sell your house in a privately run auction. In essence you'll be selling a deed of trust so this process will not involve the court in any way.

Without court intervention and finality, going for short sales or non-judicial foreclosures opens you up to personal liability. This means that your lender will have no prohibition to go after your remaining assets (like a second house or property) in order for you to satisfy your debt.

So if you want to protect your remaining assets just go for a regular judicial foreclosure. All you have to do is remain in default and the court will handle all the legalities for the expedient public selling of your house.

I will not lie to you. Judicial foreclosure can take significantly longer than short sale and non-judicial foreclosure. It's also much more complicated and expensive than any other proceedings. The only benefit of a judicial foreclosure is the fact that you can protect your remaining assets (like your second house) from your lenders. When the bank sells your house in a public auction, your lenders can't go after you for any subsequent financial losses.

If you want to learn more about foreclosure short sales just sign up for my exclusive newsletter. You'll get my special 25 page report containing insider knowledge about real estate short sales. You'll also get my in-depth how-to video about short selling and how you can protect yourself from personal liability and a negative credit reputation.
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