I recently had a client who was interested in a home that was a short sale. Â A very common question I come across is, 'what is the differenced between a short sale and a foreclosure'? Â The long of the short of it is (no pun intended), in a short sale the homeowner has not been able to make their payments, but they still own the home. Â In a foreclosure the bank owns the home and this is usually the last step that takes a while to get to. Â Banks don't want to own homes any more than people want to not be able to make their payments, so a foreclosure is not something that happens quickly. Â A more in depth explanation can be found below:
"There are advantages and disadvantages to buying a foreclosed property or a property that is sold as a "short sale." A foreclosure is the last resort left to a homeowner when he defaults on his monthly mortgage payments. The bank or lender initiates foreclosure procedures and eventually repossesses the property. The bank now owns the property and must try to unload it on the open market. A short sale occurs when the property is sold for less than the amount owed on the mortgage. These homes can be purchased at below-market rates, but sometimes the condition of the house or outstanding taxes can be a downside.
What are short sales?
Should a homeowner find himself falling behind in his mortgage payments and he is quite certain he will not be able to catch up, a better alternative to foreclosure may be a short sale. In a short sale, all efforts are made to sell the property for less than the mortgage amount owed. Before entering into a short sale, the homeowner will need to get the approval of his bank or lender. Not all lending institutions agree to short sales as they lose out on the total sale price. Once a buyer has found the home he wants, he must place a bid for the short sale. This bid will be submitted with the rest of the paperwork to the lender. If there is a second mortgage, the paperwork will be submitted to both lenders. When the bank or lender decides that all is in order, it will withdraw whatever liens have been put on the property, and the sale can go through.
What should a buyer do before buying a foreclosure or a short sale?
Enlist the services of a RealtorÂ® who is experienced with short sales. He will know exactly to whom and how to speak and what else needs to be done in order to make the sale go through successfully. Should you decide to go through with the process on your own, make sure you bring professional advisors with you when you visit either the foreclosure or the short sale. Keep in mind that foreclosures are sold "as is" and are usually in run-down condition and in need of much repair. Most banks will not participate in fixing up a foreclosure.A short sale property will be in much better condition. The owner is probably still occupying the residence and has been trying to maintain some sort of standard in order to sell the house. The price of a short sale home will therefore probably be higher than a foreclosure, which can be sold by the bank at a large discount. However, this is not always the case, so check out the prices of other homes sold in the neighborhood to get a good idea about the actual market value.
What to keep in mindDo the proper research into each available property worth considering, and be cautious before making any deal. Always get a preapproval from the bank for either a foreclosure or a short sale, so you can grab the property you want without waiting for the bank to get back to you. This will ensure you don't lose the home you want.The process for a short sale is longer than for a foreclosure. With a foreclosure, the bank owns the title of the property and assumes any existing liens on the property. This shortens the time process somewhat. However, even with researching liens, sometimes a short sale will go through easily and more expediently.There are advantages and disadvantages to purchasing foreclosures as well as short sales. Most importantly, find the property you wish to buy, follow the correct procedures and be financially fit to see the sale through."
*** Quoted information was taken from realtor.com