Short sales and foreclosures have been in the spotlight in the last couple of years, but are they worth your time and investment?

Firstly, it’s important to understand how a short sale and a foreclosure differ.

A short sale is a step in the foreclosure process and represents a home owner’s desire to sell their property for a sum less than the amount is actually owed to the bank or lien holder. 

A foreclosure is when the bank or lien holder has taken, or is taking steps to take possession of a property. Short sales do not necessarily represent a home owner who is in foreclosure.

When you see homes advertised as being a short sale, and their list price seems too good to be true, watch out. As the saying goes, there’s no free lunch.

Most short sales represent a home sellers’ “hope” that their mortgage holder will accept their short sale rather than go into and through the full foreclosure process. The problem is that many short sale listings haven’t opened a dialog with the lender as they are waiting until they have a deal to negotiate with. 

Can the deal be closed?

Banks know that a foreclosed home will cost them at least $60,000 in loses and administration, and they know that working with a seller towards a “short pay off” scenario is usually in their best interest—banks are in the money business and they don’t want to have a bunch of foreclosed homes on their books that they’re having to carry month after month. 

So yes, you can probably close your short sale transaction, but it might takes a long time to be negotiated and for the bank to accept the short pay off. 

What’s the trick?

No tricks here, just a big seller’s contingency. If the lender is unwilling to accept the short pay, then the seller has the option of cancelling the contract. In the world of short sales, there are no guarantees and it’s possible that you’ll lose any money that you’ve laid out for inspections and appraisals. 

What to expect in a short sales

Months of waiting and the deal may never close.

On the other hand, you might find an amazing deal, below market value. 

Last updated on January 24, 2012 by Blake Roberts