Purchasing a Short Sale or Foreclosed Home

With all due respect, I just have to let you know that this information is incorrect:
"A foreclosure is a property that has gone into default and now the bank becomes the "real estate agent"...."

When a homeowner no longer makes payments on their loan, the bank forecloses on the house. The homeowners are evicted from the property and the bank takes ownership of the property. When a home is being sold after foreclosure, it is often referred to as REO (Real Estate Owned - a bank term refering to the asset). The bank is the seller and they hire a local Real Estate agent to handle the sale.

The foreclosure process itself can take a long time, depending on the state etc. During which time the homebuyers are often still in the home. While they are in the home, they are not making payments and rarely do they maintain the home (since there is no point, the home will be taken from them and they will have a foreclosure on their credit and no money). After the home is foreclosed upon, it sits vacant and neglected until a new buyer purchases it. Banks will not pay for repairs or maintenance while they own the home, nor will they pay for any insepctions or repairs once a buyer is found.

Short sales are a different situation. The sellers are selling their home because they can no longer afford to keep it, most often. The home is now worth less than they owe (not just less than what they paid) and they are asking the bank to accept less than the amount of the loan (ie short). The sellers are often still living in the home and again, are not maintaining the home. The sellers are not allowed to get any money at closing from the sale since they owe the bank thousands. Once the sellers accept an offer from a buyer, it must be presented to the bank for their approval. The bank will respond on their own time table and require additional items at various times during the transaction. The bank require the sellers to pay money at closing, most of the time, they do not have it.

Both processes can take months for a buyer. Short sales are often much longer than REO's and REO's have closed quickly, but it is not the norm.

Both processes are rather long, be patient and it can pay off :)

we just bought a forclosure and I can tell you it wasnt' a very big deal at all, our home was locally owned by the bank, some of the houses that are not locally owned can be a pain to deal with.

Short sale is someone who is trying to sell their house for a lower price before going into forclosure. A LOT of people have to O.k. the selling price before it goes to closing, this can be a LONG wait, months.

If your purchase a forclosure or a short sale, make sure you get an inspection by a GREAT person/company. I bought a forclosure a few years ago, and my inspector screwed me. The house has good bones, but everything else is down the drain. I've had to put 30 grand into it and I'm still not done yet.

Forclosures are great to buy, if you want to 'fix' it up. People who go into forclosure (not all, but a lot) tend to let the house go and break/ruin what they can, because they are pissed.

The process of buying my house only took a couple of weeks, but I heard short sales can take months.

Good Luck and Happy House Hunting :)

I have limited experience with each, but my experience with foreclosures is that a lot of times the people remain squatting for quite some time, neglecting the house and have to be evicted. The one next door to me was a mess! Like someone else said, they seem to take anything of value and leave trash. For a shortsale, my experience is that these are people that are trying to not go into bankruptcy. Yes, they don't get any money out of it, but they do get out of their mortgage obligation and are more likely to maintain the house, and try to help sell it. Just my experience.

We sold our house on short sale a few years ago. Basically, it's selling it for less than owed, but avoiding foreclosure. I know that we had less "wiggle room" as far as negotiating - we listed it a bit higher but there was an absolute minimum our bank would accept on it. And, I believe, there was also tighter requirements about how much down is required, etc. But you still have the same process as far as making an offer and inspecting the house, etc. Just look carefully, you could find a great deal!

Can't tell you what to expect, but a foreclosure is a situation where the bank takes possession of a house due to non-payment or late payments of the loan/mortgage and then, after the legal hurdles are finished up, sells it to try to recoup their money. They deal in $ not in property; they're a bank not a real estate developing firm... so they don't want to hang on to real property. So you are buying the property from the bank.

A short sale, is when an individual homeowner(s) sell their home for less than the amount owed on the mortgage, with the bank's approval, and the bank basically writes off the difference. The homeowner ends up having to pay taxes on the amount "forgiven" by the bank, or the bank can maybe pursue them through other means to try to recoup the loss, but the BUYER gets the house at less than what is owed on it. The purchase still involves the individual homeowner(s), not just the banking institution.

I know from having acquaintances dealing with a short sale, that they can take a LOT longer than a standard home sale.

We recently closed (last week) on a short sale. It took 5 MONTHS from our initial offer to close -- and this was not contingent on our selling anything first. Our first loan fell through because of the time it took the short sale bank to respond to the offer. Then the property did not appraise for our offer because values declined while we were waiting for their approval. So we declined our 2nd loan, because in the meantime interest rates with that bank rose dramatically. 3rd time was the charm. We ended having to pay for 2 appraisals.
So if you go for a short sale be prepared to be patient and make sure your agent and their agent has experience dealing with a short sale.
Foreclosures are different. A good home inspection is a good idea no matter what home you buy, and for foreclosures especially. Expect that when the homeowner moved out that they took anything that wasn't nailed down. However, since the bank now owns the house, you won't have to deal with a loss mitigation agent and the backlog that they face (which is what slows down short sales).
Unless you are buying a home at auction, you should expect to pay very close to current market value for a foreclosed or short sale home. The bank will not accept offers significantly below market value just because it is a short sale or foreclosure.
Good luck to you. I hope things go smoothly and you get a home of your dreams.

I work for an outsourcer that manages/sells bank-owned properties. In most cases if you are financing the property the bank will make lender-required repairs if needed (FHA/VA/Conv). Make sure you get a real estate agent that is familiar with REO or short sale properties. They can help guide you through the process. Depending on the area and the value of the home a lot of the banks are looking more towards getting owners into homes and having them as a long-term customer. If you finance through the bank that owns the home there may be some breaks in appraisal/credit report fees. Don't be afraid of REO/foreclosed properties. Good luck!

I think there is no general answer, as every homeowner is different. We had a foreclosure across the street from us that sat vacant for more than 2 years. The bank! actually cleaned it up before listing it. It was missing kitchen cabinets and a kitchen wall, but the family who moved in just shampooed the carpets and are happy, so you can't say they are all completely trashed.

On the flip side, the person who said the short sale took 5 months was still on the short side of what most realtors will tell you to expect. We were told at least 6 months at the soonest. We ended up getting something better before it all went through, so haven't actually been through the process. The house we did look at was in horrible condition. If someone doesn't have money to pay for the house, and is probably going to loose it one way or another, why would they put money into keeping it nice?

Don't think you can't afford a nice house just because it's not a short sale or foreclosure. We paid 40k less for our house than our neighbors did a week later for a house with less square footage and in need of repairs. Theirs was a foreclosure, ours was a motivated seller. Our major repair? We bought a bag of dirt to fill in a whole under the rocks. Have fun shopping!

A foreclosure is a property that has gone into default and now the bank becomes the "real estate agent" which-they hate. Many times after a home has been taken back by the bank-they will conduct auctions with sealed bids or simply market the house. A big chunk of certified funds-in hand-and pre-approved financing is a massive plus at this point. The bank has been burned once and they are not about to have it happen again. Contact a loan officer that you trust (not online!!!) and get it together-the better you look on paper-the stronger your chance is of getting the home you want. Don't even think of fudging on any of the documentation-you better have amazing credit, great income with strong conventional ratios-estimated mortgage payment/monthly income+ debt/income-I'm guessing in this market should be-31/45???? Lengthy employment, savings, etc-will make your case formidable. Good luck-I hope you get the home of your dreams!