What’s the Difference? Short sale vs. Foreclosure

Short Sale. Pre-foreclosure. Foreclosure. These words sort of lie out in the dessert area of real estate jargon. They aren’t the desirable words like “under contract” or “sold”, but they are important and its good to have an idea as to what they mean. And while you may not think you will be encountering their meaning anytime soon, they will help you while binge watching the latest HGTV shows! So, lets get to it! 

Short Sale

A short sale occurs when a homeowner owes more on their mortgage than their home is worth. In some cases the homeowner has trouble making mortgage payments, and is behind on their lien and is “upside down” in their home loan. They reach an agreement with their lender to sell the home for less than the owed amount. A bank will not agree to a short sale without good documentation as to why the short sale is necessary.

Pre-foreclosure

This is the period prior to foreclosure. The homeowner is at least 90 days late on their mortgage payments and they have been notified from their mortgage holder that the process of foreclosure has begun. After the lender files this Notice of Default, the homeowner usually has 3 months to make good on the loan. At this point a homeowner could make the choice to approach their bank about a short sale.

Foreclosure

This is the process of the lender/bank liquidating the asset, the home, when a homeowner has become delinquent on the payments. The home then is in the possession of the lender and they will have it appraised and sold to recover their money.

We Found the perfect house but… its listed as a… Short Sale, Foreclosure. What does this mean for me, the buyer?

If your dream house is a short sale, be prepared to be patient!! Short sales are notorious for being on no one’s timeline but the banks. Your offer must not only be accepted by the sellers, but the bank as well. Due to the fact that the bank isn’t usually overly motivated to sell (they will be losing money in the transaction) the offer may take weeks- months to be accepted. Also, be prepared to have closing costs and understand that the bank will not be making repairs to the home or deducting anything from the price for repairs. If this is your dream home and you have the time to wait, put in a strong offer and practice patience, and hopefully that dream home will be yours!

If you think you want to buy a house in foreclosure then your transaction will most likely not take as long as it would in a short sale situation. The bank now owns the home and is motivated to liquidate the asset as quickly as possible and recover what they can for the home. The most important thing to keep in mind is that the home is sold completely as-is. Often because the previous owner was unable to make their payments on the home they have fallen behind on usual maintenance so with that in mind there may be some surprises waiting for you. Be cautious, but often times there is great potential in a foreclosed house and if you and your agent play your cards right you can often acquire these typically “fixer upper” type homes at a very favorable price.

I’m worried about Foreclosure.

Don’t wait until you’re in foreclosure to do something about it. Don’t even wait until you have begun to miss multiple payments. Communicate with your lender your financial struggles and reach a payment agreement. Research refinancing options. And most importantly seek help to gain control over your finances. Your home loan is a “priority debt” so do everything possible to make those payments!

 

 

Written by DM Properties and Associates

 

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