Should I buy a short sale or foreclosure?
Short sale: A short sale happens when the mortgage amount far exceeds the value of the home and the owner decide to sell the home at a price that is lower than the amount the owner owes to the lender or the mortgage company.
Foreclosure: If a homeowner repeatedly fails to pay the mortgage, the lender can initiate legal proceedings to foreclose and repossess the property. The lender then sells the home on its own.
Buying short sale: What to expect?
• Short sales homes are usually in good shape than foreclosure properties as homeowners would still be living there.
• Don’t be misled by the name “short sale”. It can be pretty deceiving. These deals generally take more time as the lender or the bank must agree to and approve the sale. Because the owner is attempting to sell for less than the loan amount, the bank must approve the transaction.
• Lender can block the short sale if there are other liens pending, for example a second mortgage or any unpaid association dues.
• Statistics show that banks are not really very enthusiastic to green light the short sale. You may have to wait for months and months before the owner might get the bank approval to proceed with the short sale. Even if you decide to wait, banks may back out at the last minute and you would end up losing precious time as well as countless other opportunities to buy a home at a decent price.
How to minimize the risk? It is always recommended to look for short sales that have already been okayed by the bank as “approved short sale” on the listing information.
Buying foreclosure: What to expect?
• If you think buying a foreclosure can be financially rewarding, you may not be completely off the mark. But more often than not, it can be a bit of grind and the reward comes with a fair share of risks and headaches. Since the owners are not living on the property, it may not be in a good shape, showing signs of neglect and lack of resources to fix the repair work. And in some cases, owners may deliberately damage the property.
• All said and done, these vacant and unkempt homes close quickly as banks have already dealt with outstanding liens and are ready to take the property off their hands.
• Unlike with the traditional transactions, banks are not required to provide any disclosure statement that can make you aware of the status and condition of the property. Banks sell foreclosure homes “as is” and need the buyer to sign documents that will relieve the bank of any liability.
How to minimize the risk? It is better to research the sales history of the property before the auction. Some extra investigation will help you reveal some insightful piece of information like any dispute or structural damage that may come handy in letting you decide. It is best to check for leaks, molds, termites and foundation problems as it is no fun discovering serious issues later. These repairs can get really expensive and frustrating to fix.
In a nutshell, short sales are complicated and time-consuming deals but the property will most probably be in a good condition. While foreclosures may be quick and you may not get the chance or time to look beyond the low price tag, these properties generally require major repairs. So, the choice is yours. Not all distressed properties are in bad shape and you may actually find yourself with a tremendous deal if you dig hard. But just knowing the underlying risks and benefits is not enough. You must hire an experienced agent who can help you navigate through the complicated procedures and highlight the possibilities with each venture.