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how is foreclosure different from short sale?

  • May 10 2014 - US
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Answers (3)

Profile picture for SODD
With a short sale, you owe more to the lender than your house is worth (with the economy improving, this is not as common as it was during the depths of the recession, but they are still out there).  So, let's say that your mortgage is for $150,000 but your house is only worth $125,000.  Real estate agents are not allowed to negotiate terms (what the bank is willing to accept in lieu of full-payoff) and at this point you would bring in a 3rd party (normally a short sale atty) to discuss with the bank (and maybe other creditors) what they and they are willing to accept.  As stated earlier, the seller will make no money on the transaction - all of the proceeds are going to the bank.  Make sure that your agent is experienced with short sales or that may hurt your transaction also.  They can be LONG and DRAWN OUT, so be prepared to be patient.  

 In a foreclosure situation, the bank has gone to the court (more than likely because the owner has stopped paying on the loan) and entered a Notice of Foreclosure.  At a certain point after that notice is entered (months or years later), the property is sold at the courthouse steps and more than likely (unless an investor outbids them), the bank takes ownership of the property.  In NC, the owner getting "foreclosed on" has ten days to upset the amount that the bank is having to pay for the property.

Regarding a short sale vs. foreclosure and it's effects on your credit:  I know an attorney in Charlotte that will tell you to go with the foreclosure as it will get you back on track quicker, but definitely talk with your own legal counsel before making any decisions.
  • May 10 2014
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I would add that as far as purchasing....foreclosure purchases can happen in the same time frame as a "normal" sale since the seller is offering it for sale, short sale purchases may NEVER come to fruition if it turns out the seller/homeowner does not qualify for the short sale (which is determined by their lender).  Have your agent do their homework before waiting on an answer to a short sale that may never happen.....
  • May 10 2014
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Foreclosure the lender just takes your house after a judge tells them they can.   A short sale is where you sell the house  there is no judge or court, you just don't have enough money to pay off the lender.  The lender has to agree to this and the house must be listed with an agent that does short-sales and I always recommend that there be a real estate attorney used as the negotiator, it's not the agent's job.  In a Short-Sale the outgoing  owner does not make any money, in fact. on my estimated "Net Sheets" for short sale I write with a wide black marker SHORT-SALE   ZERO DOLLARS TO SELLER.   with a foreclosure your credit is toast for as very very long time.  In a Short Sale you can rebuild your credit in a short time if you are normally a credit-worthy person
  • May 10 2014
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