Foreclosure Versus A Short Sale

 Many home buyers look into buying a foreclosure and/or short sale because they feel they can get a bargain.  They are often wonder the advantages of buying a foreclosure versus a short sale.  There are both advantages and disadvantages on buying a foreclosure versus a short sale.    A home being foreclosed on is normally the last resort that is left to a homeowner when he or she defaults on his mortgage payments and can no longer afford it or come to terms with his current lender to get a payment agreement established.    The mortgage lenders normally starts foreclosure proceedings after the mortgage loan borrower defaults on his or her mortgage and after due process, they take possession of the home.  The bank or mortgage lender then hires a third party or often called a receiver to take charge of the foreclosed home and list it on the market at fair market value or a value the receiver deems it best for a quick sale under the condition the subject property is in.

What Are Short Sales?

Short sales often happen when the subject property is sold at a price below the amount of the mortgage loan amount held by the bank or mortgage lender.  Many short sale homes can often be purchased below market value but many times, the homes may need tons of work and the home buyer should take this into consideration.

Benefits Of A Foreclosure Versus A Short Sale; Short Sale Homes

The real estate and banking collapse of 2008 has devasted millions of home owners throughout the country where housing values have plummetted and wiped out equties of homeowners.  Millions of hard working Americans who have lost their jobs could no long afford their monthly mortgage payments and were forced to list their homes so they can downsize or take the hard earned equities they have build.  Unfortunately, the majority of the homeowners found out that the mortgage balance of their homes were higher than the value of their homes and were forced to contact their banks or mortgage lender and offer them the keys in lieu of a foreclosure and/or short sale.  Many did not know what the advantages and disadvantages of a foreclosure versus a short sale.

How Do Short Sales Work?

Prior for a homeowner to be able to enter into a short sale agreement, the homeowner needs to get permission from the bank or mortgage lender on what agreed price the homeowner can list the property below the homeowners current mortgage balance.  The main goal for the lender is to try to get as close to a price to the mortgage balance as possible so the mortgage lender minimizes its losses.   In a short sale, all efforts are made to sell the property for less than the mortgage amount owed.  Not every mortgage lending institutions will agree to a short sales sales contract.  Most of them will just proceed to foreclose on the property.  institutions agree to short sales as they lose out on the total sale price.   If there is an offer on a short sale property, the offer is turned in to the mortgage lender who is the lienholder and the mortgage lender can come back with a counter offer or take the offer.  Once the price is mutually agreed upon, the sale can go through.

Hiring A Real Estate Agent

If you are intending on purchasing a short sale home, I strongly recommend that you choose a real estate agent who has experience with short sales.  The experienced realtor will know about the short sale process and the barriers you can experience with buying short sales.  The realtor will guide you the right way on the type of offer you should make and what other buyers you are competing with.  The realtor will refer you with an experienced mortgage company or loan officer who can give you a fast pre-approval who meets your credit and financial situation.  The majority of short sale homes are sold as is and the seller will not make any repairs if you are going through a FHA insured mortgage loan and the home is not safe and not secure.

Advantages And Disadvantages Of Buying A Foreclosure Versus A Short Sale

On most cases, the buying process of a short sale home is takes normally longer than a foreclosure home.  Banks or mortgage lenders owns the the home on foreclosed home and has the liabilities of all existing liens that is attached to the subject property.  Bearing this fact, the buying process is shortened because the bank or mortgage lender has full control of the property and in most cases, the home is vacant.    Prices for foreclosed homes may be lower than short sale homes because mortgage lenders do not want to hold vacant property in its inventory and do not want the liability of vandalism or having squatters occupy the place as well as keeping up with the maintenance of the property.  The longer a foreclosed home sits on the market, the better price advantage and negotiation power you will have.  The bad thing about foreclosed homes is that most foreclosed homes are in worst condition than short sale homes.  With short sale homes, the homeowner can be still occupying the home and taking care of the home.   Many times, foreclosed homes have had fixtures and appliances taken out of the home or replaced with inferior items.  Keep in mind that most short sale homes and foreclosed homes are sold on an “AS IS” basis and you could run into problems during the appraisal process.  Sellers normally correct items that the appraiser requires fixed but many banks or mortgage lenders who are the owners of short sale homes or foreclosed homes may be relunctant in repairing items when the appraisal requires it.  Some banks or mortgage lenders will give the buyers entry to the property to make the repairs but will not pay for it.

Disadvantages Of Buying A Foreclosure Or Short Sale Home

Not all foreclosures or short sale homes are bargains.  Many times market prices for foreclosure and short sale homes are at market or above market prices and that is why I strongly recommend that you choose an experienced realtor who knows the area and the comparables.  Another disadvantage in buying foreclosed homes or short sale homes is that they normally take a lot longer to close than privately listed homes.  There are cases where foreclosed homes and short sale homes take up to six months to close due to the slowness of the mortgage lender or bank to get back with conditions such as title, lien releases, etc.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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