What are the differences between buying a pre-foreclosure and foreclosure?

Asked by Trulia San Antonio, San Antonio, TX Tue Feb 5, 2013

How do the differences affect the buying process?

Help the community by answering this question:

+ web reference
Web reference:


Roland Gonza…, Agent, San Antonio, TX
Tue Feb 5, 2013
Pre-forclosure (short sale) is a sale from a homeowner that is under water with his mortgage and has agreement with mortgage bank to sell home for less than what is owed - used to be a big hassle but most sales work fairly smoothly as long as agents are familiar with process.

Foreclosure is either bank or government owned and the sales price has pretty well be determined - most sell fairly quick.

Homeowner comes up a lot better with a short sale - buyer can get good deal with either.

Call me for more details - 210-722-2725

Roland Gonzales
0 votes
Jason Campbe…, Agent, San Antonio, TX
Wed Feb 6, 2013
Answer 2 of 2:

Bank REOs and Local Bank Foreclosures: In some cases, you will find that these banks will offer "Speical Finacing" on some of their homes. I just ran into one, where the bank is offering a 1.5% interest rate on a $3.6 Million foreclosure. That makes that a very attractive luxury foreclosure!! This will vary from house to house.

Over all, the lending requirements on Pre-Foreclosures and Foreclosures are about the same as any other home. There are some little differences, and it is always good to work with an agent that has done a lot of foreclosures. You really only run into trouble when you don't really know what's coming. If you are in the market for a Short Sale or Foreclosure, believe me when I tell you, an experienced Agent in both of these areas is worth their weight in GOLD and they don't cost you a penny.

I can't tell you the drama that I've been able to help my buyers avoid by walking them through the process step by step and explaining all the little details... all for the price of $0.00 to the buyer!

Hope all that is a little helpful.

Jason C Campbell
Platinum Top 50 Finalist
Option One Real Estate
1 vote
Jason Campbe…, Agent, San Antonio, TX
Wed Feb 6, 2013
Answer 1 of 2: The Differences between Pre-Foreclosures and Foreclosures:

Pre-Foreclosures can be 2 different things. Either a Short Sale - where the Seller's lender is going to allow them to sell the home for less than what is owed on the home. Or, the Seller knows they are in trouble, have not tried the short sale route, and are just selling the home as fast as they can. Most will call that a Distress Sale. It has not foreclosed yet, and the seller is willing to wheel and deal.

Short sales have a few little quarks - First, they may take a long time. I see them average between anywhere between 4 to 6 months to close. Some may take even longer. This is because, once you make an offer, there is a process with the bank that can take quite a while. You may have very few employees at the bank working hundreds of homes all over the country. You make an offer, and several months later, they either accept or decline the offer. Once the bank agrees on the final terms, then things tend to go pretty fast. (As fast as it take for your to either get your loan processed, or how fast it takes for you to fund a cash buy)

Other quarks: 1 - If the home is a short sale, the seller doesn't have much money to play with. If they did, the home wouldn't be a short sale. Which means, in most cases, the seller is not really financially able to cover repairs that the home might need. Thus, you will see most short sales as "As Is" sales. If you are doing an FHA or VA loan, you may run into the old "Lender Required Repair" issue. If the appraiser that does the appraiser sites that the home will require repairs... you may find yourself in a situation where you will have to make repairs to a home you don't own yet. Risky business! But that is another blog worth of info right there.

2 - Some Short Sales will require more money out of pocket for you to get them financed. Some banks will not allow the seller to help with the buyer's closing costs, or will limit the amount they will allow. This leaves the buyer to cover their own closing costs, which can be anywhere from 2 to 5% of the sales price.

In the vast majority of cases I have had where my buyer bought a short sale, the process was long, they needed a little more money out of pocket than they would have needed on a regular sale, but at the end of the rainbow was a "Good Deal" on a home. It's not a bad way to go over all if you have the time and the home fits what you are looking for.

Foreclosures: The home belongs to the bank, mortgage company, or corporate lender. There are several different brands of Foreclosures. Bank REOs, Hud homes, VA Foreclosures, Fannie Mae & Freddie Mac foreclosures, and Local Bank Foreclosures. Each of these has little quarks to them.

HUD Homes - These are homes that were purchased by someone using an FHA loan. The owner defaulted, and the home was foreclosed - HUD will offer all kinds of neat things sometimes. Everything from $100 down programs, to homes being sold WAY under market value. Depending on the condition of the property, you can finance these homes using and FHA, VA, Conventional, or in some rare cases, an Texas Vet home loan. If the home is "Insurable with Repair Escrow" - that means that even though the home needs repairs, you can still do an FHA loan, and finance in the "lender required repairs" as estimated by the appraiser. Your FHA lender will be able to fill in the details of how all that works for you. If the home is too beat up that it is not FHA insurable, than you can only either pay cash, or get a conventional loan.. which usually means more money down. In most cases, lenders require a 20% or more down payment on a home where the condition is rated at Below Average, Fair, or worse. You will have to get with your lender to see what their criteria is on "Fixer Upper" homes.

VA Foreclosures - In most cases, these homes are in pretty good shape. Sometimes VA will have them fixed up to qualify for FHA or VA Financing. (Not in all cases) Some of these homes offer VA Vendee Financing. This is a pretty cool program. It looks and smells like a VA loan, but you don't have to qualify for VA to get the loan. They usually take about 2 months to close, but you wont need a whole lot of money out of pocket. If you don't use the Vendee loan, then the normal qualifications for lending apply. VA Foreclosures DO NOT HAVE AN OPTION PERIOD.. translated into English, you don't have a "free look" period to do a home inspection. They expect you to check the home out prior to making them an offer. So beware of that little quark before you contract on a VA Foreclosure

Fannie Mae & Freddie Mac Foreclosures - Some of these can be quite the deal! Freddie Mac offer a "HomePath or HomePath Renovation Loan" on their foreclosures that can be as little as a 3% down payment. In some cases where the home needs work, the Renovation Loan will finance the fixes for you.
1 vote
Ted Esquibel, Agent, Austin, TX
Fri Feb 8, 2013
If you're looking to finance an REO or Foreclosure we offer a NO DOC loan to investors. We do require 35% down and the house must appraise for the purchase price on the contract...that's it! If you'd like more information about our program, please contact me directly. We do the deals no one else can because it's our money.

Ted Esquibel –Account Executive
Visio Financial Services
o: 512-334-1481| c: 512-203-6230 | f: 512-692-1961
1905 Kramer Lane, Ste B-700 Austin, TX 78758 | http://www.econohomes.com
Connect with us on Facebook, Twitter, LinkedIn, or Google+!
0 votes
Monica Barri…, Agent, San Antonio, TX
Wed Feb 6, 2013
A pre-foreclosure is called a "short sale"; the seller owes more than what he can sell the property. The lender/bank has agreed to accept less than what is owed. The lender has to give approval on all aspects of the sale, so the closing on the house is usually between 3 and 6 months. You can get a real good deal on short sales if you are patient.

A foreclosure is a situation where the owner has already lost the property and the bank/lender now owns it. The owner is no longer a part of the sale and has to leave the property. Foreclosures can also take a little while, but from my experience, not as long as a short sale.

Good luck to you and let me know if I can be of any further help to you.

Thank you,

Monica Barrientos-REALTOR®
0 votes
Jose Novelo, Agent, San Antonio, TX
Wed Feb 6, 2013
The time to have your offer accepted and to close.
0 votes
Justin Werner, Agent, San Antonio, TX
Tue Feb 5, 2013
I disagree with the statement "be prepared to encounter various types of obstacles in either case" Possibly yes, but most REO foreclosures don't have any issues. I've helped many buyers buy foreclosures and at most it usually takes about one week more time to close than a traditional sale (worst case ever only took 3 extra weeks to close a title issue).

If you have the time and want to go after a pre-foreclosure / short sale be sure to only consider those that are listed by an agent with the CDPE or SFR designation/certification or if it is an agent that does them all the time (a knowledgable buyer agent who works distress sales will know which agents list and sell short sales all the time) and yes, be prepared to not receive an answer from the seller's lender for at least 1 month and maybe up to 4 months with an agent as described above, or even 10 months or more for a less knowledgable/experienced short sale list agent, and also be prepared that their answer may be no, even if you offer full asking price - it happens.

On a foreclosure, mediation is not allowed, most times seller will pay for your title policy if you use their preferred title company, they don't give you a seller's disclosure or survey, you don't pay for a termination option period (where you can cancel for any reason within a set amount of days) but are granted an inspection period and can only back out if something major comes up on the inspection and you will be expected to give them a copy of the inspection report to back out and get your earnest money deposit back. Also you will be expected to sign the bank's "counteroffer addenda" which overwrites some parts of the main TREC contract.

If you want an agent that can guide you through these detaills and help you successfully purchase a great deal, call me. (Just realized this wasn't asked by a buyer, but by Trulia - doh! - thanks for wasting my time Trulia. Lame.)

Justin Werner, ABR, CRS, SFR
Accredited Buyer Representative
Certified Residential Specialist
Short Sale & Foreclosure Resource Certified
RE/MAX Exclusive
10000 San Pedro, Suite 110
San Antonio, TX 78216
210-367-4757 Cell


Past Client Video Testimonials:
Your Home Sold in 120 Days, GUARANTEED!
Save at least $2,500 on your next home purchase, GUARANTEED!
0 votes
Steven Zinsm…, , San Antonio, TX
Tue Feb 5, 2013
That should read - not much difference. Pre foreclosed is usually what is considered a short sale- this transaction can take a considerable amount of time- possible up to 3 or 4 months. A foreclosed property is already empty, owned by the lender, and ready to market. The process requires bidding on both types of purchases. If you are in a hurry , neither if these transactions are for you. Be prepared to encounter various types of obstacles in either case.

Hope this was helpful. If you need assistance in The San Antonio housing market, please feel free to contact me.
I am familiar with the processes for both types of transactions.

Steven Zinsmeister
Real Estate Agent
0 votes
Dallas Texas, Agent, Dallas, TN
Tue Feb 5, 2013
No difference between the two(2) it both requires lender approval. Be prepared to wait both of these transactions can take months to close.

Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
Multimillion Dollar Sales Producer

Follow me on Facebook
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more