Questions from Sally: My husband and I want to buy our first home and fix it up. I've been hearing a lot about people needing to sell their houses in foreclosure. What's the difference between a short sale and a foreclosure?
Answer from Jeanette Joy Fisher
You will find a number of homes for sale in various stages of foreclosure. You might find houses in foreclosure listed with an agent. Sometimes, you can strike a bargain with a desperate seller if you're ready to close right away. A real estate agent handles most of the negotiating and contracts for you.
On the other end of foreclosures, a short sale can happen when the home owners have little or no equity in the property. A short sale means that the property sells for less than the mortgage owed. Usually investors find a desperate seller who hasn't listed their home for sale and negotiates with the seller as well as with the mortgage holder.
In a short sale, you'll have to negotiate with the lender directly. Since lenders are often willing to take considerably less than retail for foreclosure properties, you can often get a bargain-priced home. A short sale allows the lender to avoid a number of the costs they typically incur during the foreclosure process, such as attorney's fees, eviction costs, property damage, and the costs of listing with a real estate agent. So, to get a good buy, your task is to convince the lender that it's in their best interest to accept your offer.
One of the most frustrating parts of short sales is simply locating the person with the power to negotiate the sale. Although the names vary, most lenders have a department that handles short sales. You'll probably spend a considerable amount of time on the phone while you're referred back and forth within the organization until you finally find the right person. However, once you've found that person, you can often negotiate an attractive deal.
The lender will also want to know about the current borrower's situation. This may require you to work with the borrower to create what's called a hardship letter, giving intimate details on how difficult it will be to continue making the mortgage payments. It can be a time-consuming and tedious process, but it can pay big dividends. The lender will often require a written contract between you and the seller to make sure the seller doesn't make any money on the sale. Your first bid may be rejected, but you can often get a better deal than you'd get with a regular seller, because lenders have no emotional attachment to the property.
Short sales can be frustrating, but they also offer the potential for excellent profits.
You're smart to think about your first home as an investment. In reality, all home owners are real estate investors.
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Copyright © 2006 Jeanette J. Fisher