What are foreclosures and short sales

Photo: Jeremy Bolen

What does foreclosure mean?
The foreclosure process is what the bank does after a homeowner stops making their mortgage payments. Basically, to foreclose is for a bank to legally fight to take back the home. After a foreclosure is completed, the bank owns the home outright.

And what is a short sale?
A short sale is when the bank will take less than what it is owed to get rid of the home. For example, if the homeowner still owed $500,000 to the bank, but a buyer only wanted to pay $440,000 and the bank accepts, that would be a short sale.

How much money does a person need to buy a home in foreclosure or a short sale?
The typical 20 percent down payment. Everything is negotiable, but I would strongly recommend coming with a preapproval letter.

How fast is the process of buying a foreclosure or short sale?
Totally depends. If the property is being marketed for less than market value, it moves fast. But these deals are few and far between. If the buyer is negotiating a short sale with the bank and the homeowner, it can take 30 to 90 days, possibly even longer.

So, what’s the benefit of buying a home in foreclosure or as a short sale?
If you’re buying a foreclosure (either from a person or a bank), you can pretty much guarantee that the seller really wants and needs to sell. But since many houses have lost value, you need to be careful you’re not paying too much. Say someone paid $500,000 at the height of the market, but now the house is appraised at $450,000. If the asking price is $490,000 then you aren’t making money. Short sale is the same: If you’re confident that what you’re paying is less than the current value, you win.

Any advice for us real-estate novices?
In terms of your agent, your attorney and your mortgage broker, you should work with people who’ve dealt with foreclosures and short sales in the past. Buyers should ask loads of questions: Find out exactly what the debt amount is and find out what the property last traded for. All this info is public and easily accessible to a good agent.

Contact Michael, a partner at Estate Properties, at jmichael@estatepg.com.

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