Short Sales and Foreclosures (a simple explanation)
What is the difference between a short sale and a foreclosure? I get this question at least twice a week, mostly from consumers, so I’ve decided to address it on my blog.
Let’s deal with foreclosures first, since most people are more familiar with these. There are several different types of foreclosures. For the most part, when people ask me foreclosure questions, they mean a mortgage foreclosure which is when a bank takes possession of a home from a defaulting borrower. These foreclosed homes can eventually end up in our MRIS (MLS) system with the bank hiring a Listing Agent. When a buyer writes an Offer to Purchase on a Foreclosure home they will be negotiating directly with the bank. Initial response times from the bank average about 10 days. These homes are sold “as-is” but most banks allow the buyer to conduct a home inspection for informational purposes.
Short Sales are a little bit of a different animal. A borrower who thinks they will default on their mortgage, or is defaulting on their mortgage, may decide to try to sell their home before the bank can foreclose. In a market that has a downturn, many of these homes can no longer sell for the current loan amount. In these cases, the owner of the home will seek a Short Sale. This is a sale where the sales price is not sufficient to erase the current lien and the bank will accept the deficiency and release the lien in order to offer the new owner clear title. When a perspective buyer writes an Offer to Purchase on a home that is a Short Sale they will be negotiating with the Seller first and then the bank that holds the mortgage will review what has been agreed to. The bank does not have to go through with the sale. It can take upwards of 60 days to hear an initial response from the bank. Homes in this situation will also be sold “as-is,” but home inspections are usually allowed for informational purposes.
This is by no means an in-depth explanation of these very complicated types of real estate sales. This is merely meant to offer a simple explanation. There are many pitfalls when trying to buy a Foreclosure and a Short Sale. It is very important that you hire a REALTOR who is familiar with the processes and that you close the transaction with an attorney who is familiar with the processes.
If you have any questions about short sales and foreclosures, please feel free to contact me! (I am not an attorney and can not give you legal advice.)
Nice writing style. Looking forward to reading more from you.
Chris Moran