Thinking about purchasing a short sale or foreclosed home?

The housing market has been hot in recent years, most favoring sellers with available property in increasingly limited supply. As it cools off in tandem with the increase in interest rates, that trend may begin to change, even perhaps leading to a burst of short sales and foreclosure properties.

Short sales and foreclosures could give buyers an opportunity to snag a house for less than the value of the house. This is because both scenarios result from a homeowner getting so behind on their mortgage payments that either they request the lender to help them out from under their debt or the lender itself repossesses the property. Let’s take a look at the differences between these two situations.

Short sale

A short sale is a voluntary desire to let go of the property. In short sales, borrowers need to obtain approval from the lender to sell the house for perhaps much less than the current loan amount. In this case, the lender receives the proceeds from the sale, and the borrower pays back the difference between the amount owed and the sale amount.


Conversely, foreclosures are involuntary in that the lender takes legal control of the property due to chronic non-payment. Oftentimes, the borrowers will abandon the property. If they do not, the lender will likely evict them and proceed to sell the property and take the entire proceeds.

It’s important to understand that short sales tend to take a long time to process and require extensive paperwork. This means it could take up to a year to complete the sale and be ready to move in. Foreclosures differ in that they tend to move much more quickly.

In either case, you could save some money by purchasing a home in this way. It is unfortunate for someone to lose their home due to their inability to pay the debt, but there are systems in place to try to reduce the over-lending practices that potentially lead to such a circumstance. Working with someone familiar with real estate contracts can help guide you through these unique purchasing scenarios.