Short Sale vs Foreclosure

00:03:37 and they know exactly what. they need to sell it for

- I wanna buy a short sale.

I wanna buy a foreclosure.

Do you know the difference?

Stick around to find out.

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Hi, welcome back to my channel.

If you're new here, my. name is Samantha Pearlman

and I'm a realtor located. in central New Jersey.

Every week I post videos about

what it's like to live and work here.

And guidance on buying, selling,. and investing in the area.

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You know, I get asked by a lot of buyers

when we start the process:

"What exactly is the. difference between a short sale

"and a foreclosure?"

They started searching online

and they start to see some of these terms,

these real estate terms,

but they don't really. understand what they mean.

I think it's important to understand

as you search for a home

and you come across. properties that might be

a foreclosure or a short sale

that you understand exactly what they are,

what the differences are,

and what it would mean to. you, and your buying process.

So, let's start by talking. about a short sale.

What is a short sale?

A short sale is when. the property or the home

is still owned by the homeowner,

they have some sort of a. hardship in their lives,

or a life-changing event.

Maybe they've lost their job,

maybe they've lost their spouse,

and it's really come to a point

where they are having difficulty

keeping up with the mortgage payments.

They've concluded that. the best decision for them

is to actually sell the home.

The challenge in this, is that

they actually owe more on the mortgage

and the liens on the property

than what the home is actually worth.

Let me give you an example:

Let's say somebody has a. home that they need to sell

because they've lost their job

and they can no longer. make the mortgage payments.

They owe roughly $350,000 on the home

and the fair market value for. the property is only $300,000

leaving a $50,000 deficit in what is owed

versus what they can actually sell it for.

In this situation where they owe

more than the home is actually worth

they have to request. permission from the bank

to accept a lower payoff than. what is owed on the property.

So, they have to ask the bank basically:

"Will they take $300,000, instead. of the $350,000 that they owe."

Now, I'll go into the short sale process

in a lot more detail in a future video

but for now that's an overall summary

of what a short sale is.

So, if you're purchasing a short sale

the only way that the sale goes through

is if the bank is willing. to take that $300,000.

Now, let's talk about a foreclosure.

What is a foreclosure?

A foreclosure is actually a legal process

where the bank goes. through the court system

to take back ownership of the home.

The homeowner either. abandoned the property,

stopped paying the. mortgage on the property,

or has voluntarily deeded the. property back to the bank.

So, there are two main differences

in these types of properties.

The first main difference is,

in a short sale the homeowner. actually still owns the home,

and in a lot of cases they. still live in the home as well,

and in a foreclosure. the bank owns the home.

Most of these properties. are gonna be vacant

because the bank is holding the ownership.

The second main difference. is really a big one.

It is in how long the. process actually takes

from contract to close.

In a short sale do not. let the name be deceiving

because it is anything. but a short process.

A short sale can take. anywhere from three months

up until, I've even seen. as long as two years.

The reason a short sale takes so long

is because you're actually. in an active negotiation

with the bank.

Again you're asking them:

will they take, let's say $300,000

instead of the $350,000.

Also the people that. are handling the files

have a lot of files on their desk.

It takes a lot of time to go through them

and review all the different aspects

in order for them to make the. decision on the negotiation.

In a foreclosure, the. closing process is actually

a pretty standard amount of time,

and it actually can go a little bit faster

depending on your financing.

This is because the bank has already

taken ownership of it.

They've already reviewed all. the financials behind it,

to cover all of their losses.

So, when you submit an offer to the bank

they're able to give you an. answer back really quickly.

Now, there is one aspect of a. short sale and a foreclosure

that is very similar.

In most cases, these. properties are gonna be

sold to the buyer in an as-is state.

Now, technically any resale property

in the state of New Jersey is sold as-is

subject to the buyer's right. to do a home inspection.

And the same is true in a. short sale and a foreclosure.

However, the bank and the. homeowner has advertised

up front that they will not be making

any repairs to the property.

In the short sale situation,. if you look at it like this,

the homeowner's gonna advertise. that they're not gonna

be able to make any repairs

because they don't have the. budget to make the repairs.

If they did, they would. probably be holding on

to the property.

So, there's no funds there for them

in order to make repairs.

So, you as the buyer need to agree

to take the property as-is.

When it comes to a foreclosure,

you're dealing most cases. with a big national bank,

and they're really not in. the business of real estate.

They're in the business of banking,

and they're just trying. to get rid of the property

so that they can cover their losses.

So, they are less likely to. be willing to make repairs

on the property for you as the buyer.

Now, I will say that this. is not 100% for each side

because I have seen both. in a short sale situation

and in a foreclosure situation. where I've represented buyers

where we were successful in negotiating

a credit for repairs or a repair itself.

However, the overall majority of buyers

have to agree to take. these properties as-is.

I'm gonna leave you with one. tip for purchasing short sales,

and I'm gonna bust one myth. when it comes to foreclosures.

Here's a tip out there for all you buyers

if one of the properties. you're interested in

happens to be a short sale.

When I'm working with a buyer

and they're considering whether or not

they want to see or make. an offer on a short sale,

I ask them a very important question.

I ask them:

"Are you willing to. wait, at least one year,

"before you can close on this house?

"Do you love it so much,

that you could wait a whole year,

before closing and moving in?"

If they answer "yes," then we move forward

with a short sale offer.

If their answer is. "no," then I advise them

a short sale may not be. in their best interest.

As I said earlier, the. process is anything but short.

I have seen it in as quickly. as three to four months,

but most cases you're. looking at six months or more

to get the negotiation done.

The other challenge is. once you start the process

you actually don't know how. long it's going to take.

You're kind of sitting in the dark.

So if you're gonna. purchase a short sale home

you have to really, really love the home.

You have to feel like. you're really getting

the best possible deal,

and you have to practice. a lot of patience.

Now, I'm gonna bust a. myth about foreclosures.

A lot of people out there think that

only investors can purchase a foreclosure.

Well, I'm here to tell you. that you as a regular buyer

can actually purchase. a foreclosure as well,

and why it might actually. be a good idea for you.

So, depending on the. condition of the property,

as I mentioned earlier, you most likely

have to take it as-is,

however, there are quite a few banks

that are making repairs and updates

to the property before. they go out on the market.

So, I have actually seen. foreclosure properties

that have been repaired. and fixed up by the bank

out in the open market where. a buyer can purchase it

and actually the condition is so good

that they're able to. obtain an FHA loan on it.

If the property is in. not such great condition

and an FHA loan is not. something that's feasible,

then you might want to consider

getting conventional financing on it,

or renovation financing.

And of course, regardless. of the condition,

you can always purchase any. of these homes with cash.

As always, thank you so much for watching.

I really hope you found. this information helpful.

You know my goal is to make. the content you're looking for,

so if you have an idea for a future video

leave it in the comment section below.

And if you know anybody that can benefit

from the information. I've shared here today,

please share the video with them.

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I'll see you next week.

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