foreclosure imageWhat is a foreclosure? What is a short sale? And, which one is a better deal?

Who doesn’t like to get a great deal? Whether you are shopping for some new clothes, or for a new home, knowing that you’re getting a significant discount puts a smile on your face (and your wallet). But, do foreclosures and/or short sales really equal discounts?

Foreclosure – These are generally bank owned properties. The previous homeowner failed to pay their mortgage a number of times and the bank has taken the asset (home) back. Now the bank has put the house on the market.

Foreclosures are generally advertised (but not always sold) “as-is,” they provide free & clear title to the property, and are generally motivated to move the property as quickly as possible. Foreclosures tend to close within 60 days of going under contract with a Buyer.

Short Sale – This is situation where a property in which the homeowner owes more on the property than fair-market value will command in a sale (the home-owner is upside down in the house). They are selling the home and requesting that the bank forgive them of the additional debt that is not collected from the sale. For Example: Homeowner bought the home for $200,000. Current market value is $150,000. So, the homeowner owes $50,000 more than the home is currently worth. The owner needs to sell their home, so they ask the bank to allow them to sell the home for fair market value ($150,000) AND they request that the bank forgive them of the $50,000.

Because a short sale needs a homeowner and the lender to sign off on the sale, these tend to take a bit longer to process. I’ve seen short sales take anywhere from 30 days to 2 years to close. As a result, there are not a lot of buyers willing to be this patient. However, if you are in a situation where you can be patient and see the (somewhat painful) process through, it can result in a great benefit to you.

So, are Foreclosures or short sales a better investment? The answer…it depends. There are pros and cons to both. And each place should be analyzed individually. I’ve seen both foreclosures & short sales overpriced and others that are great deals.


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