If your neihgborhood is anything like mine FishHawk Ranch there are a lot of real estate signs that say foreclosure or short sale. As a realtor, I am very familiar with what a foreclosure home is. In fact, I have CDPE designation which stands for Certified Distressed Property Expert. As foreclosures have been in the news for years now I thought most everyone was familiar with the term, but just the other day I had a home owner on a listing appointment ask me “what does foreclosure actually mean anyway?” I thought I would write a blog about it and try to explain in some basic terms for those who are interested.
We have banks and other lenders who loan money to people to buy real estate. The person who borrows the money promises legally to pay a specific amount of money each month for a set period of time or until the loan is paid off. This is called a mortgage and I think everyone is familiar with the term. It’s when someone defaults or stops paying the monthly mortgage that the wheels of foreclosure are set into motion. State laws are different so I don’t want to get into time-frames other than to say that once you stop paying your mortgage, after a few months the lender starts building its case to foreclose on the property.
What is a short sale?
A short sale is when the lender agrees to take less for the home to satisfy the note than what is owed on the home. Here is an example. Let’s say you bought a home 3 years ago for $225,000.00 and you owe $200,000.00. You were making your payments until three months ago when you lost your job….(there are many real people out there suffering from this). With things not getting any better and your reserve funds running out and the lender sending you letters that they are starting the foreclosure process you decide you must sell your home, so you call a realtor. You are given the bad news that your home is only worth about $150,000.00. A good realtor is now going to become a consultant and explain your options and advise you to speak with a lawyer to decide if you are a short sale candidate or if a foreclosure would be your best option. For the sake of this blog you a short sale candidate. So, we put your house on the market at a fair market or just below fair market price. We wait until we have an offer (in most cases) and then we go to your lender with our offer and ask if they will approve a short sale. Let’s say the offer is $140,000.00 leaving you $60,000.00 of paying off your mortgage note. If they approve the short sale what they are saying is that they will let you sell your home for $60,000.00 less than what you owe them…thus the term SHORT SALE…it’s being sold short of what is owed. There is more going on than this, but this is a simplistic way to at least understand what a short sale is. I’m sure you want to know what does it cost an individual who short sales his home because the bank isn’t just going to say oh well, we understand you had some personal issues. No, there is a cost and again speaking in general terms, you take a hit to your credit or beacon score and there is a real possibility that the lender will ask you to sign a promissory note for some amount of money. The good news is that in 2 years as long as you work on restoring your credit and don’t have any other issues with paying creditors are eligible to get back into the housing market and buy a home again!
My next blog will be on the other type of foreclosure which is when the bank takes your home from you. Stay tuned and questions are always welcome!
Make it a great day!
REALTOR, Keller Williams Realty
CDPE – Short Sale Specialist
PCS Military Relocation Specialist
I don’t work from 9 to 5. I work from start to close!