Foreclosure vs. Short Sale

Key Takeaways Foreclosures are involuntary, where the lender takes legal action to take control of and sell the property. Homeowners who use short sales are responsible for any deficiencies payable to the lender. Short sales allow people to repurchase another home, while foreclosures affect a borrower's credit score.

1. Is it better to buy a short sale or foreclosure?
2. Do Banks prefer short sales or foreclosure?
3. Can a bank foreclose on a short sale?
4. How long does a house stay in short sale before foreclosure?
5. What are the disadvantages of buying a foreclosed home?
6. Why is a short sale bad?
7. Who pays liens in a short sale?
8. What happens if a short sale does not sell?
9. How fast can a short sale close?
10. Do you owe money after a short sale?
11. Can a seller cancel a short sale contract?

Is it better to buy a short sale or foreclosure?

Benefits of buying short sales

A short sale is still owned by the homeowner, who owes more on the mortgage than the home is worth. “The short sale is, in my opinion, far better than buying a foreclosure because the home is generally in better condition because it's been occupied,” she says.

Do Banks prefer short sales or foreclosure?

Banks are run like a business because they are a business looking to earn a profit. If it costs more to foreclose over agreeing to a short sale, the bank is very likely to favor the short sale. With foreclosure, a bank takes possession of the house, then resells it at a mortgage auction to the highest bidder.

Can a bank foreclose on a short sale?

First, you need to find out if this house is still in short sale status or if it has advanced to foreclosure and is now classified as a bank real estate-owned, or REO, property. ... Sometimes, banks foreclose during the short sale process simply because they believe the owners are trying to delay eviction.

How long does a house stay in short sale before foreclosure?

A short sale may take up to 120 days, but this could be shorter or longer depending upon your specific situation. If you are unable to sell your home, you may be able to transfer the ownership of your property to the owner of your mortgage. This option is called a Mortgage Release or Deed-in-Lieu of Foreclosure).

What are the disadvantages of buying a foreclosed home?

Drawbacks Of Buying A Foreclosed Home

Increased maintenance concerns: Homeowners have no incentive to maintain the home's condition when they know they're going to lose their property to foreclosure. If something breaks, the homeowner won't spend money to fix it, and the problem could get worse over time.

Why is a short sale bad?

Short sales are a mixed bag for the buyer, the seller and the lender. If you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

Who pays liens in a short sale?

In a short sale, you sell your home and for less than the outstanding mortgage balance. The lender agrees to accept the proceeds from the sale in exchange for releasing the lien on the property even though the amount is “short” of paying off the debt. Example. Say you owe $400,000 on your mortgage.

What happens if a short sale does not sell?

Known as a short sale, selling your home for less than your mortgage balance may entice buyers looking for attractive deals. ... When short sales don't pan out, homeowners still have foreclosure avoidance options, including deeds-in-lieu of foreclosure.

How fast can a short sale close?

Once an offer is received and signed, I send it to the bank, along with the seller's short sale package and a prepared HUD. From that point to the time of short sale approval, the average timeline is about 60 to 90 days. It means 30 days to sell + 60 days for approval + 30 days to close escrow = 4 months, on average.

Do you owe money after a short sale?

In California, you can only do so after a short sale, but remain liable for the debts after a foreclosure sale. ... Thus, deficiency judgments, or these debts you may still owe after your home was sold, can usually be discharged in bankruptcy.

Can a seller cancel a short sale contract?

Sellers Who Cancel Short Sale Contracts

In California, buyer's agents generally attach a "short sale addendum" to the purchase contract. The short sale addendum specifies that the entire transaction is contingent upon lender approval. ... The seller may be able to accept a higher offer and cancel the first offer.