What is a short sale and what is a foreclosure?

Due to the collapse in the economy a few years ago, there were many homeowners who suddenly could not make their mortgage payments.

This bad situation for one person may turn into a good situation for another. A foreclosure or short sale can be a great opportunity to purchase a home that you otherwise could not afford.

So, what are they?

Foreclosure

A foreclosure is a home that has already been taken away from the homeowner by the bank. The seller is now the bank. Typically a foreclosure is sold “as-is”.

For the most part, you treat this purchase like you would any purchase with a seller.

You write a contract, your agent presents it to the listing agent, who represents the bank. The listing agent presents the contract to the representative at the bank.

Just as in a normal sale situation, the bank may accept your offer or may counter back depending on the situation.

Even though the home is sold “as is”, you may do a home inspection, but it is often for “information purposes only” meaning, that if you, for example, find a plumbing leak or broken window, it will be up to you to continue with the purchase or not.

The bank can be asked to fix it and sometimes they will – other times they will not and at that time if you choose to, you can walk away.

Short Sale

A short sale is a little more complicated. A short sale occurs when an owner needs to sell, but the home is not worth as much as the owner owes on the mortgage.

Additionally, the owner is under some type of financial stress and can no longer make the mortgage payments nor bring money to the settlement table to make up the difference between sales price and loan balance.

The bank holding the loan has agreed to accept the sales price for full payment of the loan, usually, but not always, releasing the owner from any further financial obligation.

For the homeowner, a short sale is often a better alternative than a foreclosure, as it usually results in a lesser hit to the homeowner’s credit rating.

There are a few practical differences in short sales and foreclosures.

Short sales take longer than foreclosure to complete as a buyer must first reach an agreement with the seller on a sales price, then the seller must get the bank to agree to the sales price.

However, short sale properties are often in better shape than foreclosures leaving less additional expense to the buyer once they own the home.

Both types of sales take some expertise to complete. The Walker Team are Certified Distressed Property Experts and have had many successful foreclosure and short sale settlements with very happy clients!