Short Sale Foreclosure Information
One of the biggest questions our clients have been asking us these past few years, has been, “what is the difference between a short sale and a foreclosure?” I hope that this short message helps you understand the difference. Please know that we are always available to help you should you have any additional questions.
When a homeowner discovers they can’t make their payments, they have some options. First, talk to your bank! Try and work out arrangements to make partial payments, add your payments to the end of the loan until you get back on your feet, anything you can to save your credit.
If all else fails, and you cannot make your payments, you may have to sell your house. A Realtor or an Appraiser can tell you what you can get for your house. Appraisers charge around $300 to $400. Realtors will give you a professional report using many of the same databases, for free.
If your home turns out to be worth less than you owe, talk to your bank about doing a “short sale.” This means you are “short” the amount of money you will need when you pay off your loan. The word “short” definitely does not apply to the process of getting a short sale pushed through. You will have to file mounds of paperwork about your finances and your problems. You will most likely have to actually be behind in payments already, to even qualify. You should try to get qualified for a short sale before you put it on the market. It makes the process go much faster when you get an offer.
Also know, that because you have fallen behind in payments (which you mostly likely need to have done to qualify for a short sale) your bank could start foreclosure proceedings on you. It could be a race to sell your house before the bank takes it….a pretty stressful time.
This can effect people who are not even in financial trouble, and they have to move due to a job transfer or divorce…and they discover their investment in their home, is not what they thought. They don’t have enough money to sell it and pay it off. Those sellers can opt to pay the difference with a different loan, their savings or even their 401K…or do the short sale.
In a short sale, banks have to have lots of people “sign off” on the bank losing money. This can take time to go from one department to the next and from one person to the next. Sometimes entire committees are involved in the process. The bank may even have to get the okay from a Private Mortgage Insurance company (who may have insured your loan,) if you put down a low down payment. If you have a second mortgage on the house…well…those people have to agree to take a loss, too. You will also need permission from them. It can become a long, drawn out process.
Short sales are better on your credit report than foreclosures. You may take a hit for less years than for a foreclosure. So I would recommend trying for them, even though it sounds like a tedious process, rather than giving up and letting the bank take your house.
If that process seems daunting, you may want to talk to your bank about just “giving them the house.” This is called a “deed in lieu of foreclosure.” You basically sign over the house back to them. I would highly recommend you talk to an attorney if you are interested in this option.
An actual Foreclosure means all efforts to pay for your home or sell it, have been exhausted, and the bank goes to court to get you removed from your house. Even after the foreclosure is legally granted, you will have a short amount of time to get the money to catch up on your home, one last chance, but if that doesn’t work you are asked to leave, or you will be evicted.
In all three cases – short sale, deed in lieu, and foreclosure you will not receive any money when all is said and done. However, check with your Realtor, Bank or Attorney, as the government and/or banks may offer some monetary relocation assistance funds.
That’s the viewpoint from the seller side.
From a buyer standpoint, when you put an offer in on a home that is going through a short sale, be SURE to find out how far along they are in the process. If they have not even gotten approved for the short sale, there is no guarantee your offer would even be considered. The best case scenario, is…it is approved for the short sale and they are just waiting for an offer. Still, you usually have to allow a longer response time, so everyone can sign off on the loss to the bank.
In a short sale, first the seller gives permission to sell at your offered price, then the bank has to agree to that price as well, so just because the seller accepted your offer, doesn’t mean the bank will, too. Counter offers can be made, even if you are paying the asking price. In the end, the bank looks at every penny it will lose, and may decide to charge even more.
If you are purchasing a Foreclosure, listed with a Realtor, that process is almost as easy as buying from a “regular” seller, because in this case the bank is the seller (remember, they took the house from the original owner.) Expect more paperwork, as banks are notorious for wanting to use their own forms, but it shouldn’t take too much longer than buying a house from a “regular” seller.
(NOTE: If you are going to the courthouse and purchasing a Foreclosure, that is far different procedure. You participate in an auction on a certain day of the week and usually have to put 10% down that day and come up with the difference shortly thereafter. If it doesn’t sell there, the bank usually “buys” it, and then in most cases, it will be listed for sale with a Realtor.)
If you have to be in your new house by a certain time, I would not recommend going with a short sale. There are far too many unknowns, and no one can promise you a certain date.
As far as prices go, I have found short sales and foreclosures are now coming up in price. They used to be “cheaper” than the average home…but banks are getting greedier, yes, I will say that, and holding out for more money, sometimes even making you fight over the home. It is not uncommon, for a bank to price it low and hope for a bidding war. The most common phrase coming out from banks is “give us your highest and best offer.” So be aware of that.
In a short sale, the people will usually still live there, because they still own it. In a foreclosure they’ve been forced out of their home, and the bank owns it. Sometimes people in these situations don’t leave the home in the best shape, so always do an inspection before you buy.
Again, if you are short on time, I would not recommend a short sale, or a HUD foreclosure (unless everything is perfectly in place.) But if you can close in 45 to 60 days, a regular foreclosure would probably work for you.
Just remember we at Advantage are always available for extra help and support for you