Are you considering purchasing a home that’s in foreclosure, or as a short sale? If so, you really need to make sure that you understand the meaning of these terms and what the home’s status means to the buying process, because it’s actually a big deal. A good basic rule to consider when looking at a foreclosed, pre-foreclosed, or short sale home is to move forward with caution, if at all. If you are a first-time buyer looking to move into a home and live there right away, this type of sale is probably not right for you. Even under different circumstances, it might not be right for you. There are numerous pitfalls associated with buying a distressed home, and understanding them is important.
A short sale happens when a seller owes more on the home than the house is worth (or the price it can realistically sell for) and is asking the bank to pay off the house at a smaller amount. A short sale home may be in some state of the foreclosure process, usually because the seller is behind on mortgage payments. A short sale is bad for your credit, so most people won’t make that choice unless it’s a last resort. You can buy a short sale house through a regular Realtor, but the buying process won’t be the same as with a normal home. First of all, the process is arduous and drawn-out. A short sale purchase typically takes six months to a year. If you need a place to live ASAP, this will be a problem. Also, while many people might think that a short sale equals a great bargain, the truth is that the bank will be trying to get back as much of the money they lent as possible, so they will likely torpedo lowball offers. Just because a seller agrees to a short sale price, it doesn’t mean that the lender will as well. In some cases, it can be a better deal for the bank to simply let the house foreclose, because there are fewer costs involved.
A foreclosed home, on the other hand, is one where the lender has already repossessed the home from the owners due to a lack of payment. Foreclosure is a process that begins 90 days after the owners’ last mortgage payment. Most buyers of foreclosed properties do so at auction, sight unseen. Experienced investors buy up foreclosures with a lot of cash and a formula that helps determine whether flipping the house will turn a profit. Buying a foreclosure is not an endeavor for the inexperienced buyer. Many factors can make a foreclosure a risky investment. For one thing, the former owners may still reside in the house, and you would then have to go through the legal process of evicting them. Not only does this cost you time, but it is common for angry and frustrated foreclosed owners to trash their soon-to-be-former home before they leave. Also, quotes Realtor.com, “"if you buy, you assume all liens, IRS liens, and other mortgages possibly tied to the property," says Kevin Sucher, a real estate agent in Portland, OR.” Plus, offering the most money for a foreclosed property won’t necessarily win you the purchase. Unlike normal sales, the bank is, with foreclosures, most likely to go with the deal that will close most quickly and without hurdles.
If you are considering buying a foreclosed home or a short sale, the information here is only a primer. You owe it to yourself to thoroughly research the processes that go into distressed home sales and to learn what you need to know about going through with such a sale.
