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What’s the difference between a short sale and foreclosure? Which is better?

Prospective homeowners who are looking for distressed Idaho real estate will find that there are two general categories of distressed residential properties:Short Sales and Foreclosures.

Which is better if you are facing financial difficulty:

Home in BoiseShort Sale: A short sale of a Boise home is a transaction between the homeowner and the purchaser which will not generate enough cash to the seller to completely pay off the outstanding mortgage.  Because of this, the mortgage lender must agree to take a loss and approve the sale.  Several problems can result from this kind of a transaction. The listing price for the home is not pre-approved by the lender and the final sale price may be different. The seller sets the listing price without knowledge of what price the bank will accept.  The purchaser may find that a fully ratified contract is completed and the bank will insist on a different price, or completely disapprove the sale.The bank’s approval can take several months. Once the purchaser and seller agree on a contract, the seller presents the transaction to their mortgage lender.  The lender goes through several steps to determine if they are willing to accept the loss.  They will appraise the property, compare it to other transactions in the area, create a file and present the case to the investors that actually own the mortgage.  A second mortgage can make the transaction even more difficult as it can hold up the entire transaction if the lenders are cut out completely.  A common answer is to have the first mortgage holder pay the second mortgage holder a nominal sum, perhaps a few thousand dollars.  In any case, however, the process of getting approval from the second mortgage is separate from the first mortgage and requires a complete processing. A positive side to the transaction is that because the original contract is between the owner and the purchaser, elements in the contract can include provision for repairs to the home, providing support for the purchaser’s closing costs and the like.  Frequently the bank will allow such items so long as they have no responsibility for the repairs.

Home in MeridianForeclosures: A foreclosure occurs after the mortgage lender has repossessed the home, and taken title to the property.  At this point the bank actually owns the property and as they put the property on the market, they will price the home at a number they will agree with.  If a purchaser submits a bid that is for the listed price, the transaction will go much more quickly.  There is no need for any further review. If the buyer bids below the listed price, a review and the associated delay will occur. Foreclosed Idaho real estate are sold “as-is” meaning the bank will make no repairs to any part of the house.  The buyer can conduct an inspection, but can only back out of the deal if the house is unacceptable.  Although a short sale can be an excellent deal, foreclosures are generally simpler and are more likely to succeed. Search Idaho Foreclosures for a great deal on a home.

Kevin Hughes

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