Short Sale Vs. Foreclosure for Buyers
Investing in real estate can be a lucrative venture, but it also can be frustrating and confusing if you're not familiar with the processes and regulations. Short sales and foreclosures offer the chance to purchase properties at below-market prices, but you should understand each process thoroughly before putting your money at risk.
Foreclosure
When a homeowner falls behind on his mortgage payments, the lender has the right to take steps to recover the debt. If no repayment plan can be worked out and all other options have been exhausted, the lender can lay claim to the property by foreclosure and evict the previous owner.
Once a property is foreclosed, it typically is put up for auction by the lender or by the sheriff of the county in which it's located. These auctions are often held on the courthouse steps. If a property doesn't sell at auction, it becomes the lender's property and is marketed and sold.
Short Sale
A short sale is one way a homeowner can avoid foreclosure. If she has missed a few mortgage payments and has determined that she has little chance of being able to pay off that amount and resume making her payments, the homeowner can ask the lender for permission to sell the property for less than is owed on the mortgage. The incentive for the lender is to recover some of the debt owed and avoid additional expenses that might be incurred with foreclosure, including legal fees, taxes, insurance and any liens against the property.
If the lender agrees to this arrangement, the property is marketed to prospective buyers as a short sale. To purchase a house through a short sale, you must make an offer directly to the lender, not to the seller, and hope the lender accepts that amount for the property.
Foreclosure Auctions
If you're thinking of buying a house at a foreclosure auction, there's a lot of research to do first. Make sure the title is clean and there are no liens against the property. No one has to disclose those to you and you're likely to be responsible for them after you buy the house. Also, inspect the property as thoroughly as possible, because if you buy it, you'll be responsible for making any necessary repairs. You can't always get inside the house, but if it's vacant, you can look around outside and possibly look in the windows. Don't forget to check out the neighborhood as well.
Bank-Owned Property
A foreclosed property that failed to sell at auction is called a real estate-owned (REO) or bank-owned property. The lender will have to pay off any liens and make sure the title is clear, and you'll be allowed inside to inspect the house. But be sure that you don't pay more than the property is worth and that you can afford to make all the necessary repairs. REO properties usually are also sold as-is, which means the lender won't make any improvements or repairs before you buy it.
Buying Through a Short Sale
Buying a property through a short sale requires patience. Because you're buying it through the lender, there's a lot of red tape. Your offer will have to be approved by several of the lender's employees, and this can take a few weeks or even a few months. You also aren't likely to get much in the way of feedback or updates during this process.
When deciding on your offer, keep in mind that you won't get to negotiate and that, as with a foreclosure, you're usually buying the property as-is. The lender won't make a counteroffer; your offer will be accepted or declined. So put your best offer on the table in the beginning, but be sure not to exceed your financial limits or take on a bigger fixer-upper than you can manage.
Tags: short sale, Short Sale, against property, Foreclosure Buyers, lender make, liens against, liens against property
