Gina Marie Johnson

What is a "short sale"?  A short sale happens when a seller owes more on their home than the current market value of the home.  The seller asks the bank/lender to take a loss on the sale and accept as payment in full less than the current mortgage balance. 

Why would the bank accept less than what is owed?  It can cost the bank far more to foreclose on the home than accept a short sale, so financially speaking, a short sale is often less costly for the bank. 

Is a short sale a good deal for the buyer?  Most often, the answer to this question is no.  Since the home is usually sold at market value, there isn't much of an advantage to the buyer.  There are also more risks involved. It is possible though to purchase a short sale at less than market value, but in most cases, this rarely happens. 

What is a foreclosure?  A foreclosure is a legal process by which the lender forces a sale of a mortgaged property because the borrower has defaulted in making payments.

There are typically two ways to purchase a foreclosure: Purchase the property at a foreclosure auction on the courthouse steps or wait until the property becomes an "REO" (Real Estate Owned) property.

Purchasing a property at a foreclosure auction on the courthouse steps can be risky.  You do not get a clear title on the property.  If liens, (i.e. tax liens) exist, you are responsible for paying those once you own the property.  Also, you generally have no way of knowing the condition of the property prior to purchasing it.  For the average person or family, we do not recommend purchasing a home this way.  We only recommend  purchasing a home in this manner if you are an experienced investor.

Another way to purchase a foreclosure property is to wait until it fails to sell at a foreclosure auction.  The bank will then "take back" the property (it then becomes an REO) and attempt to sell it with the assistance of a Realtor.  If you purchase a home in this manner, you receive a "clear title", free of existing liens.  You are also given the opportunity to have a licensed home inspector look at the property to uncover any hidden problems or defects prior to fulfilling your purchase commitment  .  If the home is found to have termites, the bank will most often pay to have it fumigated before you purchase it.  On average, a bank will drop the asking price of an REO every eight weeks until it sells.  We've seen many bank owned homes sell for well under $100,000 of market value.