Blog

Foreclosures and Short Sales: What You Need to Know!

March 9, 2009 by MSI

Over the past two years, foreclosures have risen to record levels in the United States. According to RealtyTrac, foreclosures rose an astounding 81% in 2008, with over 860,000 homes repossessed by lenders, this after a 75% increase in 2007. In total over the past two years, over 1.2 million homes have been foreclosed on in the U.S. The rise in foreclosures has also led to a significant rise in the number of short sales.

What is a foreclosure? A foreclosure is when a bank takes possession of a home from a defaulting borrower. Even though these homes are usually sold below market value, you are buying the home “as is”. The positive side to buying a foreclosure is that you are dealing directly with the bank and can expect a much quicker response time for negotiations than you would with a short sale.

A short sale is when a home owner who is currently in default or could soon be in default tries to sell their home prior to the home going into foreclosure. The sales price is not sufficient to erase the current lien and, in a perfect world, the bank will accept the deficiency and release the lien in order to offer the new owner a clear title. Once an offer is made, the negotiations are made with the seller first, and then the bank that holds the mortgage reviews the terms of the contract. It may take upwards of 60 days to hear an initial response from the bank and they do not have to agree to accept the offer. One of the significant challenges with a short sale is the length of time it can take from start to finish and uncertainty as to whether or not the deal will go through at all.  For a transferee who is in temporary housing, this can be quite costly and pose a real problem for both the transferee and the Company. If time and money are of the essence, a short sale is probably not for you. If you have nothing but time and lots of patience, you can get a lot of value for your money.

Foreclosures and short sales are attractive to buyers because the property is typically available at a significant discount, well below market value. But, with both foreclosures and short sales there are risks and associated ramifications. Do your research and ensure that these options are right for you.