Foreclosures vs Short Sales

What’s the Difference Between a Foreclosure and a Short Sale?

One of the most frequent questions we get asked is whether it’s better to buy a foreclosure or a short sale. Which one will you get the best deal on?

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Foreclosures in Naples, Florida and other parts of Southwest Florida can have significant advantages over short sales. Response time for foreclosures is very short compared with 45 days to over six months for a short sale. Not too many buyers are willing to wait that long for an answer.

In our area, we usually recommend going with a foreclosure over a short sale in the same relative location. Some of the advantages of buying a foreclosure over a short sale include:

• Faster Response Time – Short Sales (really, “Long Sales”) can take 3 months to over a year with no guarantees. Banks respond to foreclosures quickly, usually within a few days in most cases. Also, you can close very quickly on a foreclosure if you’re paying cash.

• No Surprises – Short sales have unpaid liens that must be taken care of before closing occurs. Finding and negotiating those liens takes time. Many times during the final phase of a short sale, the lender will ask that the seller to pay off a certain lien or portion of a lien. This may be to a Home Owners Associations (HOA), a utility company or another lien against the title that must be removed before closing can take place. If the seller won’t or can’t pay it, the deal may be off.In contrast, when dealing with a foreclosed property, that process has already taken place and any liens were taken care of when the lender foreclosed on the property. Everyone, is already paid off when you make an offer on a foreclosure. There are no surprises.

• Faster Negotiations – In a foreclosures sale, the lender already knows their loses and what they are willing to take, but in a short sale negotiations can drag on for what seems like forever. In a short sale the lender is agreeing to take less than is owed on the property. The lender is primarily concerned about making sure the borrower/seller is truly unable to pay them and not just “unwilling” to do so. This investigation of the seller is what takes the majority of the time in a short sale.Of course, the lender is also concerned about the property’s valuation, but their primary concern is preventing borrowers who are able to pay something from walking away from their obligations just because they want out.
  As a buyer, this investigation process can be very frustrating. Buyers are seldom made aware of all the “behind-the-scenes” requests made of the property seller and they are left wondering. As a result, most short sale buyers walk away long before the bank ever gets back with an approval or counteroffer.

  On the other hand, foreclosures are already bank owned and the lender’s losses are already known. When they receive your offer, they must only decide what additional loss they are willing to take off the list price.

Even though the short sale process is improving with new legislation and systems in place, it can still be a time consuming and frustrating process for a buyer. You are better off sticking to foreclosures. Foreclosures will keep your headaches and disappointments to a minimum.

 

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