Christopher Pagli's Blog

The terms Foreclosure and Short Sale are being heard quite often these days.  Alot of people have an some idea of how they work and have probably heard mixed accounts.  So I will try to define these two terms in a way that will hopefully enlighten all of the curious.

A Forclosure is a forced sale of a piece of Real Estate to repay a debt.  The indebtedness may be in the form of a mortgage, unpaid property taxes, builder and mechanic liens, or even deliinquent income taxes.  There are also cases where criminal activities result in forfeiture.

Be careful of the myths that Foreclosures are a big money maker, lenders will do anything to get rid of the REO (Real Estate Owned) property, lenders will pay generous fees to Buyer Reps, or that lenders are even eager to initiate Foreclosures to recoup their money.  In most cases a Foreclosure costs the bank around $60,000 per transaction.

The reality is the best win-win situations arise with pre-foreclosure sales, called Short Sales.  A Short Sale occurs when the Home Owners net proceeds will not be enough to cover what they owe on the house, including a Brokers comission.  In order to get approved for a Short sale the Home Owner must prove hardship such as divorce, loss of partner, loss of job, etc.  The lien holder will then verify this information, check bank statements, and all assets to make sure the Home Owner is really unable to make payments.  A Short Sale is really a last ditch effort to save the home from Foreclosure.

A Short Sale can take a long time to close,but  because of the increasing number of them the banks are working out ways to preapprove the sale in order to expidite the process.  All states will vary as will bank policies so make sure due diligence is done. 

Since banks are not in Real estate and property management they will use national outsource asset management companies to recycle the foreclosed property.  They may also be offered to local boards and agencies that handle REO's.  These properties will then be made available to the local Multiple Listing Service, and can be shown just like any other property.  Make sure you have an Agent that is educated in the process as it can be arduous and very lengthy.  A Foreclosure in NY can take about a year and a Shortsale can take anywhere from three months to a year depending on the lending institution and the amount of liens.

For all those concerned with their credit a Short Sale will take about 50-100 points of a FICO score and a Foreclosure can take 150-300 off.  With a Short Sale the debt is forgiven case closed, with a Foreclosure judgements may be made and the Home Owner can still be held liable for certain debt.  The Seller will have a hard time getting a sensible rate and in Foreclosure cases a mortgage for about 3 years after, again this will vary.

If You are interested in buying into this market please get yourself an attorney and Agent that specialize, you wouldn't go to the dentist for a heart problem.