Short Sales vs. Foreclosures

Short sales are transactions that are typically reserved for stocks and other finance-related transactions but today, when many American’s are facing the threat of foreclosure a real estate short sale is being an popular and common tactic foreclosure avoidance tactic.

Short sales are also referred to as “pre-foreclosure sales” because a short sale precedes the home being officially foreclosed on by the lender.  It is sold earlier and faster than it typically takes when going through the foreclosure process, allowing all parties involved to move past the transaction sooner.

A short sale is defined as an arrangement between the current owner of the home and the bank that lent them the money to accent an offer for less than the total amount owed to pay off the home.  The “deficiency” is the difference between the amount owed and what the bank collects at the short sale.  Although the arrangement can manifest in different ways there is no other definition for a short sale than above.  Many real estate agents and investors throw the term out as if it means “a sale under market value” and this is not true.  A bank owned house is a foreclosure, not a short sale.  A seller lowering the price and taking less profit is not a short sale.  An individual that owns the home and owes no money on it and sells the home for under market value is not a short sale.  For it to be a short sale, someone must be getting “shorted”.

In a foreclosure, the homeowner falls way behind on their payments so the bank repossesses the home and sells it.  In a foreclosure, the bank will almost ALWAYS pursue the homeowner for the deficiency.

Although a short sale is much less detrimental to one’s credit report than a foreclosure or filing for bankruptcy, there still are negative ramifications.  The homeowner’s credit is still affected by going through the short sale process and their score can drop as much as 200-300 points but short sellers are widely viewed as less risky than an individual whose home was being foreclosed upon.  The guideline that dictate the waiting period for short sale homeowners to purchase a new home as primary residence is only two years while the waiting period for a homeowner whose home has been foreclosed on can be five to seven years.

Ideally, a short sale is win-win for both parties.  The seller has the benefit of avoiding foreclosure and the implications and stigma attached as well as become eligible to purchase a home sooner.  The lender will receive most of the value of the mortgage loan sooner and avoid the legal costs incurred in the  lengthy foreclosure process which can take years.  Short sale are also great for savvy buyers given that they have the time and skill to negotiate effectively.

Short sales are a better option than a foreclosure but it is still a lengthy and complicated process and sellers should seek the help of a knowledgeable and experienced real estate broker to assist them through this process.  Contact IMAX Premier for your short sale needs, where Michelle Mahzari has the expertise to make the process as painless and beneficial as possible.

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