Falling behind on your mortgage in San Diego can feel overwhelming. You want a clear path that protects your future, but every option seems complicated. In this guide, you will learn the practical differences between a short sale and a foreclosure, what the timelines look like in California, how each option affects your credit and taxes, and the steps you can take right now. Let’s dive in.
Short sale vs foreclosure: what they mean
A short sale is when you sell your home for less than the mortgage balance with your lender’s approval. The lender accepts a reduced payoff to avoid foreclosure. It is a negotiated resolution that keeps you involved in the sale process.
A foreclosure in California is usually a non-judicial trustee sale. The lender enforces its security interest and sells the property at a public auction. If the property does not sell, the lender takes ownership as real estate owned, often called REO.
Key differences for you
- Control: A short sale keeps you engaged in marketing and closing. A foreclosure is a lender-driven process that removes your control.
- Timing: Short sales depend on lender review and can be slow. Foreclosures follow statutory notice periods and lender timelines.
- Outcome: A short sale can include a negotiated payoff or deficiency release. A foreclosure ends in a public sale with typically more severe credit consequences.
How the process works in California
Short sale steps and timing
If you pursue a short sale in San Diego County, you or your agent will market the property and submit a full short sale package to your servicer. This usually includes your financials, a hardship letter, and a signed purchase contract. The servicer reviews the file, orders a valuation, and negotiates terms.
Approval timelines vary. It can take several weeks to many months, commonly 60 to 180 days or more. Lenders may require buyer proof of funds or pre-approval, and sometimes an immediate deposit. Approval letters include specific terms, such as the approved payoff, any deficiency handling, and a closing deadline.
Foreclosure timeline in San Diego County
If payments are missed, your servicer will attempt loss mitigation before starting foreclosure. When you are sufficiently delinquent, the lender can record a Notice of Default, called an NOD. California law provides a minimum 90-day reinstatement period after the NOD is recorded.
After that period, a Notice of Trustee Sale, or NOTS, can be recorded and must be posted, mailed, and published as required. The sale cannot occur until after the statutory notice window, commonly at least 20 days after the NOTS. From first missed payment to trustee sale, the total time can range from several months to a year or more.
In San Diego County, trustee sale notices are recorded with the County Recorder and are advertised in accordance with state and local requirements. Local market conditions, including inventory and demand, can influence bidder activity at the sale and how quickly REO properties are listed and sold.
Credit and borrowing after
What hits your credit report
A foreclosure is a major derogatory event that can trigger a larger immediate score drop than a short sale. A short sale or deed in lieu still harms your score, but the initial impact is often less severe than a foreclosure. The exact score change depends on your prior credit profile and the scoring model.
Adverse mortgage statuses and related public records typically remain on your credit reports for up to seven years from the date of first delinquency. With steady on-time payments and responsible credit use after resolution, you can see improvement in one to three years, although mortgage program waiting periods are often longer.
When you can get a new mortgage
Typical mortgage waiting periods vary by program and lender. For conventional loans, the wait after a foreclosure can be up to seven years, with potential exceptions for certain circumstances. For FHA loans, the typical wait after foreclosure is about three years. For VA loans, it is often around two years.
If you complete a short sale, some programs may allow shorter waits than a full foreclosure if you qualify and the short sale was not a strategic default. Each investor and insurer has specific rules, so confirm timelines with a lender before you plan your next purchase.
Deficiency and taxes in California
A deficiency is the difference between what you owe and what the lender recovers from the sale. California anti-deficiency protections are complex and depend on loan type, property use, and how the foreclosure proceeds. Many owner-occupied, purchase-money loans on one-to-four unit properties have protections that limit deficiency collection after a non-judicial foreclosure. Exceptions exist, especially with refinances, junior liens, business-purpose loans, and non-owner-occupied properties.
In a short sale, lenders can require a deficiency release. That release is not guaranteed. Get any waiver in writing as part of the approval and keep copies for your records.
When mortgage debt is forgiven, the forgiven amount can be treated as taxable income. Short sale deficiency forgiveness or debt wiped out in foreclosure can trigger tax issues. Federal exclusions and state rules have changed over time, so review current IRS guidance and consult a qualified tax professional before you decide.
If you are a buyer
Buying a short sale in San Diego
Expect delays while the lender reviews the file. Contract periods often need extensions, and your financing must be flexible. Lenders commonly ask for proof of funds or pre-approval and can set firm closing dates once they issue an approval.
Most short sales are sold as-is. Sellers in distress usually cannot make repairs, so budget for inspections and potential fixes. Title and lien resolution matter. Junior lienholders may need to accept reduced payoffs, which can affect timing and approval terms.
Pricing can be attractive, but not every short sale is a deep discount. In tight local inventory, multiple offers are common and lenders may counter near market value. Work with an agent who understands short sale packages and servicer expectations in California.
Buying a foreclosure or REO
REO properties are typically sold as-is with limited disclosures. Banks usually clear prior owner issues but title exceptions can remain, so obtain title insurance and read it carefully. Some foreclosure opportunities are only available at public auction, which can require cash.
Once an REO offer is accepted, the contract-to-close timeline can be quicker than a short sale because you are dealing with the bank as owner, not a third-party approval. In competitive San Diego submarkets, investors and cash buyers can drive up bids, especially on lower-priced homes with strong value-add potential.
Practical options if you are behind
- Contact your servicer early. Ask about loan modification, forbearance, repayment plans, or short sale review. Acting before an NOD is recorded often preserves more options.
- Evaluate a short sale if market value is below your loan balance and your lender is open to it. This can keep you involved and may allow a negotiated payoff or deficiency release.
- Consider a deed in lieu. This is a voluntary transfer to the lender that can be faster than a short sale if the lender agrees. Junior liens and loan type matter.
- Understand foreclosure as a last resort. Know the legal, credit, and tax consequences before allowing the process to proceed.
- Get legal advice. A California real estate attorney can help you understand anti-deficiency rules, junior liens, and risks.
- Talk to a HUD-approved housing counselor. Counseling is usually free or low cost and can help you organize documents and communicate with your servicer.
San Diego resources
- HUD-approved housing counseling agencies that serve San Diego County.
- San Diego County Recorder and Treasurer-Tax Collector for recorded notices and property tax questions.
- San Diego Superior Court for information if a judicial action becomes relevant.
- Local legal aid and nonprofit housing organizations for counseling and referrals.
- A local real estate agent experienced with short sales and REO transactions in San Diego County.
How Acquire’d Real Estate can help
If you need speed and certainty, you can request a cash, as-is offer with a short timeline to close. This can be useful when you want to avoid showings, repairs, and long approvals, or when a short sale is not feasible. Our team works across Southern California, including San Diego County, and supports transactions with coordination and partner referrals for lending and rehab when needed.
If a short sale is the right path, we can help you evaluate timing, buyer expectations, and practical steps to prepare a clean package. If a direct sale better fits your goals, we can move quickly to provide liquidity so you can move on.
Ready to talk through your options or get a fast offer? Reach out to Acquire’d Real Estate for a straightforward conversation about your next step.
FAQs
What is the difference between a short sale and foreclosure in San Diego County?
- A short sale is a lender-approved sale for less than the mortgage balance that keeps you involved in the process, while a foreclosure is a lender-driven trustee sale that ends your ownership through a public auction.
How long does foreclosure take in California after a Notice of Default?
- After the Notice of Default is recorded, California requires a minimum 90-day reinstatement period before a Notice of Trustee Sale, then at least 20 more days before the sale can occur.
How does a short sale affect my credit compared with a foreclosure?
- Both harm your credit, but foreclosures generally cause a larger immediate score drop, while short sales tend to be somewhat less severe; all derogatory entries can remain on your reports for up to seven years.
When can I get a new mortgage after foreclosure or short sale?
- Typical waits are up to seven years for many conventional loans after foreclosure, about three years for FHA, and around two years for VA, with some programs allowing shorter periods after certain short sales.
Can my lender pursue a deficiency in California?
- California has anti-deficiency protections in many non-judicial foreclosures of owner-occupied, purchase-money loans on one-to-four unit properties, but exceptions exist and short sale terms vary, so get any waiver in writing.
Will I owe taxes on forgiven mortgage debt from a short sale?
- Forgiven mortgage debt can be treated as taxable income unless an exclusion applies; rules change, so review current IRS guidance and consult a tax professional.
What should I do first if I miss a mortgage payment in San Diego?
- Contact your servicer immediately, explore loss mitigation options, and connect with a HUD-approved housing counselor to organize documents and preserve your options.
How are trustee sale notices handled in San Diego County?
- Notices like the NOD and NOTS are recorded with the San Diego County Recorder and must be posted, mailed, and published according to state rules before any trustee sale can occur.
