This is a great question and we get asked this a lot.
This is one part of a longer blog thread where we are talking about distressed sales in Kansas City, and more particularly Johnson County Kansas and what the differences are and which one is right for you. You can read the first post on this topic here.
So back to the main question.
What the heck is the difference between a short sale and a foreclosure?
There are two main differences and they all have to do with where in the foreclosure process a property or owner happens to be.
So what is a foreclosure?
A foreclosure is a listing that is being sold by a bank or other entity that has taken back a home that went into default and was unsuccessfully sold at the foreclosure auction. It is vacant and can be in many different level is disrepair. Sometimes these are called “REO’s”. According to Wikipedia, “The term REO originates from the term Other Real Estate Owned (OREO), which is used on financial statements to classify real estate property owned by financial institution but which are not directly related to its business.” Generally foreclosures are much easier to purchase and can close fairly quickly 10-20 days depending on the lender.
So what the heck is a “Short Sale”?
In short (no pun intended) a short sale is an attempt for a seller to sell a home for less than they owe(selling it “short”) on their mortgage balance in lieu of going into foreclosure.
Why would a bank want to do something like this? Why would any bank agree to sell for less than what is owed? Great question! Foreclosures are expensive and banks are in the business of lending money and not owning homes. If a seller is not able to make payments and the house can only sell for a certain amount of money, then the bank may actually save money by accepting a short sale than going all the way to foreclosure.
We will get into this in a later post, but there is nothing quick about short sales and the can take 77-140 days to close. Yikes!
If you want to find out more you can reach out to us and we will be happy to sit down with you and discuss your options. Also, if you know of someone who is behind on their payments and feels like their only option is foreclosure, then they need to talk to us right away. They have option that can greatly affect their future borrowing ability – they do not have to give up.
Till next time!