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The Difference Between Short Sales & Foreclosures

Dewayne:      

Welcome back to another episode of our series 60 Lessons that we’ve learned over 60 years in real estate. And today we’re going to talk about the differences between short sales, foreclosures and even traditional sales.

Interviewer:   

So what is the short sale? Is that a house that anyone can buy?

Dewayne:     

Well, short sale it means that the owner owes more on the property than what it’s currently worth. And they don’t have the… They can’t make the shortfall.

Kirk:      

– strategic.

Dewayne:   

Yeah, like a strategic default and then what they’re doing is they’re asking the lender to take a short payoff so that’s where you get the term short sale.

Kirk:    

There’s a lot of paperwork on the short sale. There’s a lot of people involved in making the decision so it’s just not a quick “oh you’re done”. The process can take up to a year we’ve seen them take up to two years.

Dewayne:  

Yeah, three months to a year depending on-

Kirk:   

Minimum three months. Yeah, they’re depending on the lender. Yeah, traditional sale is 30 days or 45 days and on a short sale, you’re looking at three months, bare minimum and probably up to a year. And again, you’re waiting on lenders, you’re waiting on the seller, the seller is going to provide all these documents and the documents get old or stale, they call them. They make them resend all the documents again so it’s a paperwork nightmare.

Dewayne:     

Right, and the seller has to show a hardship for them to approve it. And then do you have a second mortgage and then that even adds another layer. So that’s where you get into, sometimes, they can wait a year like what you mentioned.

Interviewer:    

Well, how does a foreclosure differ from a short sale?

Kirk:   

Foreclosure is when a lender has taken the property back from the homeowner. So the house is typically vacant, the house has already been appraised. The property and the lender, I mean it’s put on the market almost like a traditional sale. Yeah, it’s kind of like a traditional sale. So it goes on the market, you bid on it and you make an offer on it. And if there’s three offers, they’re going to ask for highest invest, which is the opposite of a short sale. That short sale, whoever’s in primary place, you can have five other offers. The bank doesn’t look at any of the other offers on a foreclosure. They’re going to look at all the offers and they’re going to take the one with the – the one that’s the cleanest typically.

Kirk:      

But when you mentioned five other offers in shorts, still that means like after they’ve already accepted the primary.

Kirk:      

So I’m like you mentioned a buyer buying a foreclosure. It doesn’t take near as long.

Interviewer:  

Which would you say is a better deal? A short sale or foreclosure?

Dewayne:  

I mean, it’s all really going to depend. From a buyer standpoint, the short sale, the owner a lot of times it’s still in the house, so you could get some proper disclosures as far as what’s maintained, what’s broken, whereas with the foreclosure, there’s no idea. So it just depends, it’s going to vary from property to property as far as which one’s going to be the better deal.

Kirk:   

Yeah. We’ve seen both. We’ve seen the short sale be a great deal and we’ve seen the foreclosure be a great deal. If I had to guess, I would say a short sale.

Interviewer:    

That was very informative. Thank you so much for your time. So what can we learn from you next?

Kirk:    

Our next lesson, we’re going to talk about the benefits of using a real estate agent when buying a home. We’ll see you next week.

Dewayne:    

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If you would like to see more from our “60 Lessons in 60 Years” web series, see below: