Foreclosure Vs Short Sale – What’s the Difference?
July 29th, 2010
Foreclosure is something few of us like to think about; after all, no one wants to lose their home, much less suffer the serious damage to their credit rating which comes along with a foreclosure. There are methods which you can use to prevent a foreclosure. One of these ways to avoid foreclosure is a short sale. When your home is foreclosed on, the property reverts to the lender, who then has to maintain it.
In a short sale, you seek out willing buyers for your home, which you’ll offer at a reduced cost. During this process, you have to keep in contact with the lender to let them know that you are doing your utmost to sell the home. Even in the event that a foreclosure date has already been set, you have the option of selling your home at any point prior ‘ and with many homeowners facing foreclosure, this is a good time for real estate investors looking for deals on homes.
If you find a qualified buyer, let your lender know immediately so that the process of selling the home can get underway. You won’t be making a profit on a short sale, since all of the proceeds of the sale will go to the lender. You will be able to avoid damage to your credit history by reporting the transaction as a payoff instead of as a foreclosure. If the bank handling the mortgage is the bank you use for your personal or business banking, this can keep your other accounts in good standing.
However, while a short sale will prevent you from having to pay mortgage payments, it’s not something you can do overnight. You’ll have to do some work in order to get your property sold – many buyers assume that a home in pre-foreclosure will be poorly maintained or even abandoned.
The best way to get your home out of foreclosure and into a short sale is to use a real estate agent, since they will have a large number of contacts and get the word out quickly that your home is for sale at a great price. Agents generally work on commission, so you’ll need to seek them out – try to appeal to their expertise; a little flattery can get you everywhere, at least when it comes to short selling your home.
A short sale also allows you the chance to buy another home much more quickly than if you had been foreclosed on. Those looking to buy a home at a good price, whether as an investment or to live in also gain an opportunity from short sales. You should talk to your lender to find out what is the lowest price they will accept for your home – for your short sale t go smoothly, everyone will need to be communicating and on the same page.
You should work to restore your credit rating as soon as possible after a short sale or a foreclosure. A foreclosure can cause your credit score to drop by as much as 300 points. A short sale is much less damaging to your credit and while you probably won’t be buying another home in the very near future, you should take the opportunity to rebuild your credit during this time. Pay down other bills while you are no longer paying a mortgage and start saving up money.
If you or someone you know is looking at an imminent foreclosure, consider or urge them to consider the short sale option. A lot of those facing foreclosure are unaware that there are other options open to them. Offer your help and try to find people who are looking to buy a home. If you are proactive, you can prevent a foreclosure.
Learn more about foreclosures and short sales and learn the steps you need to take in order to stop foreclosure at DebtReductionLessons.com.
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For more videos on short sales check out Kevin and Fred on the Short Sale Power Hour. Video for Short Sale Specialists.
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Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.