Foreclosure vs Short Sale
Foreclosures and Short Sales present various challenges and advantages to both buyers and sellers. Foreclosed properties are owned by banks or lenders, but in a Short Sale the property is still owned by the seller.
WHAT IS A FORECLOSURE
When a seller fails to make their mortgage payments, the property can be foreclosed upon. A foreclosure is when the lender assumes ownership of the property and evicts the seller. Foreclosed properties can be sold at auctions or through real estate agents.
A mortgage company aka lender, usually start the foreclosure process approximately 3 to 6 months after the first missed mortgage payment. Lenders understand that many homeowners face short term financial hardships and will give the seller time to cure the default if this can be done fairly quickly. The key to avoiding a foreclosure is keeping in contact with the lender and working out a plan of action for resolving any missed mortgage payments.
Working out a repayment plan or trying to sell the property through a realtor may postpone the actual foreclosure sale for a number of months, depending on the success of the homeowner. The lenders will usually give their clients some extra time to pay the loan back if the lines of communication are kept open. The worst thing that a homeowner can do when they are behind in their mortgage payments is to fail to contact their lender or ignore the lender’s phone calls or letters.
A foreclosure can badly damage a seller’s credit score.
THE FORECLOSURE PROCESS
Please Note: The following is a generalized breakdown of the foreclosure process. If you are interested in finding out about the foreclosure laws in your state, please speak with your attorney to find out exactly how a foreclosure will affect you, because laws vary by state.
Stages of Foreclosure
There are several stages during which the homeowner has an opportunity to bring their loan current and avoid a foreclosure.
After about three to six months of missed payments, the lender will order a trustee to record a Notice of Default (NOD) at the County Recorder’s Office. This gives the seller notice that he or she is facing foreclosure and starts a reinstatement period. The reinstatement period typically runs until five days before the home is auctioned off.
If the default is not brought current within three months, a foreclosure sale date is scheduled. The homeowner will receive a Notice of Sale, and a notice will be posted on the property. The Notice of Sale is also recorded at theCountyRecorder’s Office in the county where the property is located. In addition, a Notice of Sale is published in the local newspapers in the county where the property is located for a period of 3 weeks.
The foreclosure Trustee Sale normally occurs on the steps of the county courthouse in which the property is located. This sale can also take place on the grounds of the courthouse. The time and location of the sale are designated in the Notice of Sale. During the Trustee Sale, the property is auctioned in public to the highest bidder, who is required to pay the high bid price in cash; however, the bidder is usually required to give an upfront deposit and the remainder within 24 hours. The highest bidder receives the trustee’s deed to the property.
WHAT IS A SHORT SALE
A short sale is often used as an alternative to a foreclosure, because a foreclosure is a more expensive process. The lender as well as the seller can incur additional fees and costs in a foreclosure.
A short sale is when a seller sells their home for less than the balance remaining on your mortgage. This requires the approval of all lenders on the property. The seller must have a valid reason for wanting to do a short sale in order to obtain short sale approval.
REASONS FOR A SHORT SALE
- A seller is ineligible to refinance or modify their mortgage.
- A seller is facing a long-term hardship.
- A seller is behind on their mortgage payments.
- A seller has not been able to sell their home at a price that covers the outstanding mortgage.
BENEFITS OF A SHORT SALE
- A short sale eliminates or reduces your mortgage debt.
- A short sale avoids the negative impact of a foreclosure.
- A seller can start repairing their credit sooner than if they went through a foreclosure.
- A seller may be able to get a Fannie Mae mortgage to purchase a home much sooner (in as little as 2 years) than if they went through a foreclosure (at least 7 years).
- Credit is typically damaged much less in a short sale than from a foreclosure.
SHORT SALE PROCESS
If you qualify for one of the options above, the short sale process will be similar to a normal real estate sales transaction; however, there is a bit more paperwork.
A seller would work with a real estate agent to market and sell the home. In addition, your mortgage company will be involved in the process as well, and final approval of sales price and concessions will be left up to the mortgage company. If you have a 2nd mortgage company, they will have to approve the short sale as well.
All judgments and outstanding liens on the property have to be paid through the short sale transaction. If all lien holders do not agree to a settlement this could prevent the deal from closing.
A short sale can take up to 8 months to close. A short sale involves a lot more paperwork; therefore, you definitely would want to use a Realtor.
"It was my extreme pleasure having the opportunity to work with Ruby Williams of Tarbell Realtors on a recent transaction. I am primarily a listing broker who specializes in the marketing of bank owned foreclosure properties, and have been in the business for nearly 25 years. During that time, I've worked with literally 100's of Realtors on various transactions. I can honestly say that, of all of those, Ruby placed in the Top 5%. She's got all the qualities that make for a great Realtor. She was extremely easy to work with, kind hearted and you can tell, she CARES about the people she is working with. Not only that, she's very knowledgeable, which is an important quality when it comes to trusting someone to handle your most important investment. And, her honesty and integrity is beyond reproach. I was particularly worried about this transaction, as it was located many miles away from my office, and was a high-end home. Ruby was helpful in every instance, and made this deal a smooth and very pleasant transaction for everyone involved. She was on top of every detail, and pulled all the necessary strings to make the deal happen. Not only that, she wrote an offer that got her buyer's the house they wanted, amongst a very fierce, competitive demand for this particular home. That being said, I can only wish that all the Realtor's I worked with were like Ruby. Unfortunately, I know they are not! It's my hope that Ruby and I have many more opportunities to work together in the future. She is a joy to work with, and I would strongly recommend her to anyone in need of real estate services of any kind. She is amongst the tops in the business, and I wish her much continued success. "- Kirk Munchhof – Broker Associate, Century 21 High Country, Lake Arrowhead, CA
"Ruby is simply the best! She made purchasing my first home a wonderful experience. She is very knowledgeable, sincere and is always available when you need her. Ruby Demonstrates interest in your needs and ensures that all actions are to your advantage. I most definitely recommend her to everyone looking to purchase a home."- Michelle Blanco
"Ruby thanks so much for finding a home that met my wish list. I am very happy with my purchase! "- R. Falls-Jefferson