Foreclosure in San Francisco>Question Details

Matt Holder, Home Owner in Menlo Park, CA

What is the difference between a Short Sale, a Foreclosure and a Bank-Owned home?

Asked by Matt Holder, Menlo Park, CA Tue Dec 27, 2011

What are the risks for buyers and sellers in each phase? What is the process to buy a home in each phase?

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"Short sale (real estate) – the lender allows a property to be sold for less than the amount owed on a mortgage and takes a loss. This usually occurs when the market drops and the property is worth less than what the current mortgage is. Usually facilitated by a loss mitigator who negotiates that debt owed down to level where the property can be sold." Foreclosure is "Foreclosure is the legal process by which a mortgage lender (mortgagee), or other lien holder, obtains a termination of a mortgage borrower (mortgagor)'s equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure)." (source wikipedia). If you're a buyer, either present interesting opportunities, however, you have to be on the lookout for potential pitfalls in either case, e.g., extemporaneous liens, etc.; if you're a homeowner facing either option, the former offers some "foregiveness" of debt, although you'll have to consult with an attorney and/or an accountant on these potential "benefits" as they may impact you just the same. The best place to start is to consult with a real estate professional who's in the know.
0 votes Thank Flag Link Tue Dec 27, 2011
Good direct explanations from Rich.

What are the risks?

With a short sale, an additional risk is that the bank won't approve the offer you've made to the seller. Short sales also can take a long, long time. Some have taken 12-14 months. Four to six months isn't at all unusual. And because the seller is in financial distress, there's a risk that the bank will foreclose on the property even while you and the seller are pursuing a short sale.

With a foreclosure, the main risk is that the bank will just take a long time in considering your offer. Another risk: Lots of times, people who've been foreclosed upon leave the house angry . . . and deliberately damage it. So often the property isn't in the best condition. Even if the owner didn't deliberately damage it, sometimes it gets vandalized. Or it isn't winterized properly and you have damage like burst pipes.

The process to buy is to make an offer through your Realtor. With a short sale, it's a 3-way transaction. You make an offer to the seller. The seller accepts. Then the offer goes to the bank for its approval (which is no sure thing).

With a foreclosure, you make an offer directly to the bank (using your own Realtor).

Hope that helps.
0 votes Thank Flag Link Tue Dec 27, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
Hi Matt-

A short sale is when the seller still owns his/her property but the sale of the property will result in inadequate funds to pay off what the seller ows the bank. As such, the bank must approve the offer and agree to take less than what is owed them.

A foreclosure is the same as bank owned. The bank has foreclosed and now owns the property. This is referred to bank bank owned and also REO (real estate owned).

Thanks and hope you enjoyed your holidays!

Rich Bennett, Realtor
415.305.4911 cell

Zephyr Real Estate
0 votes Thank Flag Link Tue Dec 27, 2011
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