Real Estate Law

What’s the Difference Between a Short-Sale and Foreclosure?

There are various methods even as we speak where an investor and homeowner wannabe can still grab that carrot on the end of the stick and cash in on real estate bargains. Sure there are some states that are better than others: think Arizona, Nevada, California, and parts of Florida, but the market is there for the taking if you have the cash, good credit history and FICO on the north side of 725, or both.

That said you’ll have two choices from which to choose and, with your permission, may we offer tons of pages we’ve studied over the past several years on not only the differences, but what choice might “tug on your coat” a bit more than the other.

What is a short sale you may ask? Well in legal parlance a short sale is when a lender (most times a bank) will agree to sell the troubled home for less that what the existing homeowner owes to mitigate additional fees and costs to both the lender (creditor) and the borrower. A short sale allows the existing homeowner get out from under the house without having to endure the embarrassment, credit damaging foreclosure or Chapter 7 proceedings.

On the other hand a foreclosure is an occurring process when an existing homeowner has defaulted on the mortgage loan agreement, forcing the bank or other lender type to file the necessary documents in court or with the city giving the lender the right to pursue auctioning off the homeowner’s property to the highest bidder; usually held on the nearest courthouse steps. This scenario also offers any investor or homebuyer wannabe to sneak in the front door and in most all cases, grab a nice deal at a far lower price than they would pay on the open marketplace.

Most investors looking to make the “deal of the century” can often be found flying lazy circles over courthouse steps as well as short sales ready to swoop down, checkbook or cash in hand, ready to put down a deposit and close the deal after having a complete inspection done at their cost. A home inspection is critical when dealing in foreclosure properties since many foreclosed homes have been sitting empty for months, in some cases years, with the only occupants being empty beer cans, sagebrush, scorpions and cigarette butts.

The home inspection scenario will differ when dealing with a short sale in that the homeowner is still living in the home and ostensibly still taking a measure of care with the property.

If you’re an investor looking for foreclosed or short-sale properties, it’s important you discuss the legal parameters with a real estate attorney today.