A shortsale refers to the selling of a property for an amount that is less than what is owed to the lender. In many cases, the bank is already in the process of foreclosing on the home. If the seller can get the lender to agree to a short sale that can be finalized before the home is sold at a bank auction, then the foreclosure process will stop. This is advantageous for the seller because a short sale does not have as negative of an effect on the seller’s credit as a foreclosure does.
Shortsales
A short sale property is not always in the foreclosure process. If the owner is experiencing serious financial difficulties and is having trouble making the payments, the owner might request a short sale to avoid the property entering the foreclosure stage. Although the seller may have to wait two to three years before applying for another mortgage, and the seller may also have limitations on the loan amount that can be requested, the seller is still much better off if the bank does not foreclose on the home. The owner will have to provide evidence of financial difficulty; the lender does not want to lose money on the sale of the home and may not accept the owner’s request.
A foreclosure costs the lender money in legal fees for eviction, as well as the cost of readying a home for resale. If the lender decides that they will profit more from a short sale than a bank auction sale, then they may agree to the short sale. They also agree to release the owner from any responsibility for the difference between the amount that the property sells for and the amount owed. Although the seller may have delinquent mortgage payments reported in his credit history, the mortgage will appear as having been paid off. A foreclosure in his credit history will have a much more negative impact.
Foreclosures
Foreclosure refers to a homeowner defaulting in mortgage payments owed on a property, resulting in the bank seizing the property and selling it. A property typically enters the first phase of foreclosure after three to six months of consecutive missed payments. At that time, the homeowner is officially notified by a Notice of Default that the property is facing foreclosure, and the owner has one to three months to catch up all payments that are delinquent. If the loan is not current by the specified date, a date for auctioning of the property will be set. If the loan is not brought current at least five days prior to the auction, then the property is auctioned.
The auction is typically held on the steps of the courthouse in the county in which the property is located. The lender will set an opening bid that covers the amount owed and any associated interest and legal fees, and the highest bidder wins. The winning bidder must make a cash deposit, and the balance is usually due within 24 hours. If there are no bidders, then an attorney for the bank will purchase the property, which designates the property as real estate owned, or REO. The foreclosure is reported on the former owner’s credit report, which has serious repercussions for the person’s ability to secure future loans.
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