Did you know that foreclosures have increased by 67% last October?
This can be quite the opportunity for home buyers. Finding a suitable home sale bargain in today’s fast-paced and competitive industry might be difficult.
A distressed property may be right for you if you’re searching for a new house at or below market value and you’re persistent and patient. However, before you narrow your search, you’ll need to have a solid understanding of short sale vs. foreclosure.
Read on for our breakdown of the differences between a short sale and a foreclosure. We’ll explain them one concept at a time.
Short Sale vs. Foreclosure: What Is a Short Sale?
In the simplest of terms, both parties must have a written agreement to proceed with a short sale before it can commence. A short sale will need documents from the lender, generally a bank. This is because the lending institution stands to lose a substantial amount of money.
If your lender authorizes a short sale, the buyer first negotiates with the homeowner before going to the bank for permission on a purchase. You can’t finalize a short sale without the consent of the lender.
The lender gets the selling funds after the short sale has been authorized and completed. On the other hand, the homeowner is still liable for the deficit, which is the balance of the loan.
The Benefits of Short Sales
Foreclosures are often in worse condition than short sales. Many folks are attempting to recover as much of their credit as possible. There is a good chance they have taken care of the utilities and other routine maintenance.
Short-sale properties have less competition. You may have a fantastic deal on a short-sale house, which can sell for less than the market value. There are a lot of homebuyers who are afraid of the procedure and don’t want to deal with a bank.
The Drawbacks of Short Sales
You’ll find that short sales are set up “as is,” there is a higher chance of losing money when purchasing one. After paying the outstanding debt, the existing owner might retain the house. The buyer would have to forfeit any inspection or due diligence fees paid.
Because several lienholders are involved in a short sale, the process might take longer than a regular house sale. If the property has additional liens, such concerns will need to be resolved and authorized by the bank before the sale may go through.
There may be a lot of extra paperwork, fact-checking, and follow-up with the bank, realtors, and others involved in a short sale purchase. There may be a lot of neglected maintenance concerns that need to be handled promptly by homeowners who are in a short sale scenario.
What Is a Foreclosure?
Foreclosures are started solely by lenders, unlike short sales. If a borrower is three to six months or more late on their payments, their lender has the right to foreclose on the property.
Foreclosure processes differ from state to state regarding the notices lenders must issue and homeowners’ choices to bring the debt current. There are certain limits imposed by law on how quickly a bank must sell a property.
But, if you’re on the other end of the spectrum as the homeowner, you might want to learn more here about avoiding foreclosure on your house.
Here’s how the process works. First, the lender initiates legal proceedings to seize ownership of the property and compel the sale of the residence. The lender hopes to recoup its original investment in the mortgage by taking this action against delinquent borrowers.
In contrast to short sales, many foreclosures occur after the homeowner has left the property and can no longer pay the mortgage. If they haven’t already done so, the lender evicts the residents in the foreclosure process.
To complete the property sale, the lender must have access to the property. Because the lender is anxious about getting rid of the asset as soon as possible, foreclosures often go through faster than short sales.
Foreclosed properties may also be sold through trustee sales when purchasers compete for the property in a public auction.
The Advantages of Foreclosures
Real estate that has been foreclosed on is often sold below the market value.
Sale timelines are shorter for foreclosures than for short sales since most of them are sold as-is for cash.
When a homeowner is short for cash, the property may be subject to tax liens or delinquent taxes. In the event of a bank foreclosure, all liens and encumbrances against the property are removed from the title.
The Disadvantages of Foreclosures
When buying a foreclosed house, the most significant obstacle you may face is finding a buyer willing to pay cash. Buyers will probably require a substantial amount of money to buy the house and to cover the price of renovations.
Homeowners who reach the point of foreclosure on their property have generally run into serious financial difficulties and have either ignored or abandoned their property’s upkeep.
What About Preforeclosure?
The first phase in a foreclosure action is a preforeclosure, initiated when a homeowner fails to make three to six months of mortgage payments.
There are many choices available to borrowers in preforeclosure. Several options are available to those who have fallen behind on their mortgage payments, including making a lump-sum payment, working with their lender to modify their loan, or simply selling their property to avoid foreclosure.
The owner or a real estate agent conducts the transaction in both preforeclosures and short sales. Short sales might be more complex because the bank is involved and has the authority to reject bids that the owner has accepted.
Short Sale Tips: Simple and Sweet
If you’re new to the world of real estate, then trying to figure out the nuances between short sales and foreclosures on distressed properties can be overwhelming.
Hopefully, our guide has broken down the differences between short sale vs. foreclosure. This way, you can decide with a solid foundation of research. And, if you are hungry for more advice, you can head to our real estate section for our additional strategies and explainers.
