Short Sales and Foreclosures Explained


Foreclosure
  A non-judicial foreclosure is the most common form of foreclosure in California. If the owner of a property fails to stay current on their payments, the property can be sold to the highest bidder at a public auction. The successful bidder is typically the lender and the process takes several months to complete. Once the lender acquires the property they typically list it for sale with local real estate companies as REO (Real Estate Owned) properties.

It costs the lender (now the owner) a substantial amount of money to hold these homes in inventory. Besides the monthly expenditures, the lender is required by law to have money in reserves to cover these loans making it difficult to make new loans. For these reasons, the lender typically prices these homes aggressively and wants them sold as quickly as possible.

Although the buyer (through their realtor) is dealing with the lender as the seller, the process can be somewhat challenging but usually is pretty quick.
 

Short Sales
  A Short Sale is where there is insufficient equity in a home to cover all the costs of selling the home including paying off all loans, delinquencies, liens, and judgments. The seller is essentially asking the lender or lenders to reduce the amount of the loan or loans so the house can be sold. The lender or lenders is/are under no obligation to cooperate with the request or sale. If they don’t cooperate, the home typically goes into foreclosure. The Short Sale process can save the lender or lenders a substantial amount of time and money as opposed to going through the foreclosure process.

Short Sales are listed by realtors and the purchase process usually is extremely challenging. Typically the buyer is competing with other buyers and there’s no guarantee the lender will even cooperate. It can go months even to get any kind of response from the lender(s).

Many times the listing agent will price the home extremely low to try and generate offers that can be presented to the lender(s). This unfortunate practice is damaging to the general real estate market and the lender(s) typically will not accept these low offers even if they’re receptive to cooperative with the Short Sale.
 

How Does A Short Sale Or Foreclosure Affect Your Credit
  Check out this link to About.com