Short Sale vs. Foreclosure

In my opinion, while there are many differences, the main difference between short sales and foreclosures is that on a short sale the seller is still the owner. In a foreclosure, the seller is the bank. This may seem like an obvious point but I have encountered many clients that don't realize this difference and how it plays out during the transaction....Your thoughts...
  • June 15 2010 - Alexandria
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Answers (11)

Kimberly,

There is a huge difference between short sale and foreclosure.

For one, in short sale buyer receives a clean title and General Deed of Trust. In foreclosure buyer receives Special Warranty Deed and no guarantee there are no liens attached to the property.

Once approved, (as I stated, once APPROVED), short sales are no different from a traditional sale - provided an expected level of cooperation from the seller on home inspection, etc. Buyer still needs to do their due diligence. 

Foreclosures are great for buyers when they are in a livable condition. Unfortunately, often they are ransacked to the point they do not pass appraisal for FHA and VA buyers. And they come with the Special Warranty Deed - Owners Title Insurance is a must for foreclosures (and short sales).  

  
  • June 15 2010
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Kimberly.... so true, not only buyers but agents that don't understand that the homeowner is the person you are negotiating with in a short sale.  There is never any obligation of a seller submitting an offer to the bank if they do not think they can get that offer approved.
  • June 15 2010
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The confusion I believe is between pre-Foreclosure and Foreclosure, and 'In Foreclosure' and 'Foreclosed'.
  • June 15 2010
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Difference between short sales and foreclosures?  Oh, about three months response time....
  • June 15 2010
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As we know there is a great advantage for a seller to sell as a short sale over a foreclosure we as agents need to educate our clients. I have met to many people with unrealistic veiws of the market.
  • June 15 2010
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The biggest difference is seen when one shops for "short sale" vs "bank owned" properties. 

Short Sales are homes that have been cared and maintained by the seller during the short sale process.  Always worth the wait!  Financing is available to credit worthy buyers.

Bank Owned properties tend to require lots of repairs.  They're great for cash buyers who like to fix up properties and flip them for FHA financing in 90 days.
  • June 15 2010
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Thanks for all of the great replies/info!
  • June 15 2010
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Profile picture for RichardReid
The point about the title above is an important one that many buyers - and a number of agents don't understand. 

The primary issue for most buyers in a short sale is the time frame.  They are excruciatingly slow in most cases, and most buyers don't have the time to wait, or lose their patience long before the process is complete.
  • June 18 2010
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Profile picture for bac1876
So many different ways to approach this question.  The most important question to ask is what is important to the buyer.  Short sales generally take longer to get an answer, but are often the best deals since the added costs of foreclosure have not been added to the cost of the home.  Also another important question to ask it who is the lender?  Is it a local bank or a big lender that lends all over the country?  Is there a second or even a third lien on the property?  Short sales with second liens often never close because they get held up by the second lien holder.  So what is the answer, make sure you are working with people who understand all the issues with a given property, do the research (or have an agent do it for you), and be persistent persistent and patient and you can get a great deal.
  • June 18 2010
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Brian,
great point about the "lien" issue.  It's always a good question to have answered if you have a buyer that is looking at short sale properties.  Typically the best "short-sale" situation is one in which the bank has only 1 loan for the property - once you get into 2nd and 3rd trusts, your timeline grows significantly.

Thanks for the info.
  • June 23 2010
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Persistance is one of the bigest key to get to the closing table.
  • June 24 2010
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