Short Sale vs. Strategic Default

Depending on who you ask these two concepts may be used interchangeably. There are some who consider a short sale to be a strategic default, while others view a short sale as a foreclosure alternative that has nothing to do with defaulting. However, there are some important distinctions that should be made between these two concepts to prevent confusion when pursuing mortgage debt options.

Clarification

A short sale is the process in which a homeowner sells their home in exchange from being relieved of liability over their mortgage debt. A short sale can be requested and approved with the lender prior to ever missing a payment or defaulting on the mortgage. If the seller enters the short sale process prior to missing a payment, their credit will be better protected and less risk of additional delinquency fees than if they enter foreclosure or a traditional strategic default.

A traditional strategic default essentially means the homeowner misses a payment on purpose or plans to default on their mortgage. Many people do this in order to secure a mortgage debt solution with their lender, but this strategy often works against them in the long run. Missing a payment and ending up in default is the quickest way to credit damage, which is where a strategic default can lead. There are many financial experts that advise homeowners to stop paying their mortgage in order to “save money” while they wait for the lender to arrange a solution, but this is generally not the best strategy when looking to resolve mortgage debts and protect one’s credit.