Foreclosure v.s Short Sales

As a real estate broker, I try to stay current on all things housing related. If my clients have questions, I want to have the answers. Some of the questions I get are about foreclosures and short sales so for this week’s blog, I thought it would be helpful to discuss them.

Can I Buy a Home That's In Foreclosure?

I am often asked by buyers looking to find a good deal on a home if I can help them buy a home in foreclosure. As much as I’d like to help them with this goal, I have to tell them that in the current market with rising property values, there just aren’t many foreclosures or short sales. In most cases, homeowners that find they can’t make the mortgage payments for some reason, are able to refinance or sell their home and pay off the mortgage so they can start over.

The attached chart from the Colorado Department of Local Affairs 4th Quarter Foreclosure Report for 2017 demonstrates this. Notice that the  4th Quarter 2017 foreclosure filing rate is higher than the sales at auction rate. This shows that the homeowners were either able to bring the mortgage current after the Notice of Election and Demand was filed or they were able to sell the home and pay off the mortgage.

According to this report from the Division of Housing:

“During the fourth quarter of 2017, Colorado public trustees reported 1,654 foreclosure filings and 447 sales at auction (completed foreclosures). During the fourth quarter of 2016, there were 1,794 filings and 633 sales. Comparing year-over-year for the fourth quarter, foreclosure filings fell 7.8 percent and completed foreclosures fell 29.4 percent. The foreclosure sales totals reported for the fourth quarter of 2017 was the lowest sales totals recorded since the Division of Housing began tracking quarterly foreclosure totals in 2007.”

What Can You Do If You Find You Can’t Make the Mortgage Payment

As unfortunate as it can be when homeowners fall behind on mortgage payments and must face the possibility of losing their homes, short sales and foreclosures provide them options for moving on financially. The terms are often used interchangeably, but they’re actually quite different, with varying timelines and financial impact on the homeowner. Here’s a brief overview.

A short sale comes into play when a homeowner needs to sell their home but the home is worth less than the remaining balance that they owe. The lender can allow the homeowner to sell the home for less than the amount owed, freeing the homeowner from the financial predicament.

On the buyer side, short sales typically take three to four months to complete and many of the closing and repair costs are shifted from the seller to the lender.

On the other hand, a foreclosure occurs when a homeowner can no longer make payments on their home so the bank begins the process of repossessing it. A foreclosure usually moves much faster than a short sale and is more financially damaging to the homeowner.

After foreclosure, the bank can sell the home in a foreclosure auction. For buyers, foreclosures are riskier than short sales, because homes are often bought sight unseen, with no inspection or warranty.

The good news is if you are a homeowner and you find you can’t make the mortgage payments due to job loss, medical bills or some other reason, you have options. If you need help, give me a call. I can put you in touch with a lender to help with the refinance or advise you on selling your home.