Foreclosure vs Short Sale
As a real estate agent in Hampton Roads, Virginia, I am constantly checking the MLS to keep tabs on what’s happening in our area with inventory (houses). Recently, I have noticed an influx of foreclosures hitting the market after they were paused during covid. This was due to the The federal Coronavirus Aid, Relief and Economic Security (CARES) Act.
Now that foreclosures and short sales are back I have been getting a lot of questions from my first time home buyers inquiring on the differences and if purchasing one is right for them. There are many pros and cons to buying a home in foreclosure or a short sale, however, with vision and the right guidance, you can walk into a lot of equity. Let’s dive in to the differences!
Foreclosures
In short, a foreclosure is when a homeowner is behind on their mortgage payments and the bank repossess the home and sells it at auction or on the MLS for under market value.
There are three types of foreclosures:
Judicial Foreclosure
This is when a lender files suit with the judicial system and the borrower receives a notice requiring payment. The borrower will likely have 30 days to pay the amount owed to avoid foreclosure. If the payment is not received by the allotted time, the property will be auctioned off by a local court or sheriff’s office.
Power of Sale
In the state of Virginia, this type of foreclosure is most common. This sort of foreclosure can only happen if a power of sale clause is signed by the buyer at the time of purchasing the home. This home gives the mortgage company the right to foreclose on the property after notifying the borrower. After a waiting period, the mortgage company is the one who carries out a public auction rather than going through the judicial system. This type of foreclosure is typically a quicker process compared to a judicial foreclosure.
Strict Foreclosure
A strict foreclosure happens typically when the balance on the mortgage is greater than the value of the home. The lender will petition the court for an order declaring the borrow in default of the mortgage. If the court agrees that the borrower is in default the court will foreclose on the property and award the deed to the lender.
Short sale
The number one misconception about short sales is that they happen quickly. This is absolutely not the case, these types of sales can take months to close and in some instances, may not even get to closing at all.
A short sale is when a borrow owes more on the property than the property is worth. Typically, a home going through a short sale starts the process by being listed by a real estate agent who determines the list price by comparing the property to comparable sales in the area. Once an offer is received, it is then presented to the lender for review. The lender will either accept, reject or counter the offer. A short sale has less negative impact on the seller than a foreclosure.
My first home happened to be a foreclosure back in 2012 and the process was surprisingly easy! I went through a big bank for my mortgage (something I would not do again) and ended up with a great investment! If you are looking to purchase a home in Hampton Roads or any where else in the world, please feel free to reach out to me. I am happy to help you myself or refer you to one of my colleges in a different state or country!
