Sign of the times: Short Sales & Foreclosures

There is a lot of misinformation swirling around about short sales and foreclosures. The current state of the economy and its impact on the housing market has led to many foreclosures and short sale offerings. Often, the general public (and some real estate agents too) are unaware / uninformed about how foreclosure sales and short sales are negotiated and ultimately brought to settlement.

Q: What is the difference between a short sale and foreclosure?
A : A foreclosure occurs when a property owner has stopped paying their mortgage and the lender (mortgagee) has taken formal steps to reclaim the property and evict the borrower (mortgagor). After this process has occurred the bank can then sell the property to a new buyer.

A short sale occurs when a seller / owner must sell their home but will not net sufficient proceeds to pay off the existing mortgage/s. The seller must inform their lender of their situation and hardship(ie: divorce, job loss, transfer etc) to explain why they must sell their home now and why they can not afford to re-pay their loan. The “short sale” property is then listed typically at a “below market” price in order to trigger an offer.


Q: Sounds like a deal- What’s the catch?

A: The short sale properties or those listed price/terms “subject to third party approval” often have little or no chance of making it all the way to settlement. Sellers may perceive a short sale as an opportunity to get out of a mortgage they can no longer afford. Prospective buyers think there is the opportunity to get a “great deal”. However, this is often not the case.

Sellers may not realize that the bank may require them to liquidate retirement accounts or other assets in order to pay off the loan rather than approve a short sale. Buyers don’t realize that they may be tied to a property awaiting approval from the bank that may never come. The banks are not in business to lose money. In certain cases after the seller has accepted a purchaser’s offer the bank will respond (sometimes weeks later) that the offer is too low and will not be approved. This reopens the entire negotiation.

A property that has been foreclosed on is often in less than pristine condition. If one is unable to make timely mortgage payments it is likely he or she hasn’t been maintaining the home in top condition. Truly a Buyer Beware situation- considering the bank is most likely to offer the property in AS IS condition!


While some short sales do actually make it to the settlement table they are not without risk and there is a lot of concomitant frustration! Before getting in the foreclosure / short sale game you need an agent with experience in navigating the process. We have experience helping our clients find the properties that have a chance to actually be sold. Give us a call to help you in your quest for a “deal” that really is a deal. Not one that merely appears to be based on the list price!