As we all know by now, many of the homes presently on the market are being sold because the homeowners can no longer pay their mortgage. These homes fall in one of two categories; "short sales" and "foreclosures," it is important for buyers to understand the difference between the two as it greatly affects sales transactions.

 A "short sale" or "short pay" is a sale where the homeowner still owns the home, but the home is not worth the amount of the mortgage. In a "short sale" the seller will not receive any money from the sale of their home. They want to sell but in order to do so they must receive approval from their lender or lenders to take less than what is owed. In this situation it is the lender that decides what price the property will sell for, not the homeowner.  This can prove quite frustrating; the "short sale" process can take anywhere between two to nine months and may never close. First, the "decision maker" for the lender must be found, then he or she will determine if the homeowner truly cannot afford the mortgage, what the property is worth and whether the proposed "short" sales price (under the amount of the mortgage) makes sense for the lender to accept.  The process is burdensome and lengthy, often times a proposed buyer has to wait so long for an answer from the lender that their loan "lock-in" rate expires. Given all of the problems inherent in short sales, many have come to call them "maybe sales."   

A "foreclosure" is completely different from a "short sale." A foreclosure property is owned by a Bank or lending institution. It is also referred to as an "REO" or "Bank-owned property" The bank is putting the property up for sale after it has established a price it wants for the property.  A sale can be agreed upon quickly.  Banks and lending institutions are motivated sellers, they do not want to keep the property, they want to sell and sell fast. Foreclosures create great opportunities for buyers; oftentimes more so than short sales as the buying process is streamlined. If you have any questions give us a call.

Fernando Ayala

Real Estate Hound

cell 626-627-6949