The Difference Between a Short Sale and a Foreclosure

With the turn of the economy in 2008, the real estate market saw many homes going into foreclosure. Because they became known for being a “great deal”, many buyers started searching for either foreclosures or short sales. The two became synonymous with each other, and while many homebuyers and investors continue to search for these types of listings, they often ask what the difference is between the two.

Short Sale
If a homeowner is having difficulty paying their mortgage, sometimes they will decide to sell. But what happens if the home turns out to be worth less than they owe? The homeowner may decide to do a “short sale” with their bank.
To break it down, a “short sale” means the homeowner would be “short” the amount of money needed to pay off their loan. And while the sale may be referred to as “short”, the lengthy process is anything but.

Because banks are actually losing money in a short sale, they are required to gather a lot of signatures and complete a lot of paperwork to explain the financial loss. The bank may even have to get the “okay” from a private mortgage insurance company if the seller had a low down payment. If a second mortgage is involved, the bank that owns that loan must agree to take a loss as well.
It is in the best interest of a buyer to be aware of the details of a short sale, as well as how far along the bank/seller are in this process. If the home has not yet been approved for the short sale, the offer may not even be considered.
If the buyer’s offer is considered, the seller must first give permission to sell at the offered price, then get approval from the bank as well. Counter offers can be made, even if the buyer is offering the asking price. In the end, the bank will carefully consider every penny and make every effort to keep the selling price financially viable.

Foreclosure
A foreclosure means that the owners have exhausted all efforts to pay for or sell their home. If this happens, the bank will take legal measures to seize the property and proceed to sell it to a new owner.
Purchasing a foreclosure that is listed with a North Houston Realtor is not nearly as complicated as purchasing a short sale. Because the bank is the seller in a foreclosure seller, the process shouldn’t be more complicated than purchasing a property from a traditional seller.
Purchasing a foreclosure from the courthouse, however, is a far different endeavor. This process requires the buyer to participate in an auction, putting down a 10% payment if that day in the case of a win. Generally, the buyer will be required to come up with the difference shortly thereafter.
Many KW Professionals Realtors are specially trained concerning short sales and foreclosure, possessing the knowledge and experience to navigate through the long and arduous process of buying one of these discounted properties.