I thought it was worth revisiting this topic even though is is well covered ground. Besides if you were not interested you would not read this. If you don't know the differences or can't remember, then this blog is for you. Real estate in and of itself can be confusing with all of the different terms, laws and other issues. Being that these are still very much apart of the real estate landscape at least in the metro area of Minneapolis/St. Paul, I felt it never hurts to review.
The easiest way to remember the main difference between the two is a foreclosure (as is property, lender owned, corporate owned, ect...) is the bank owns the home out right. The foreclosure process is now over and the bank can sell it to a perspective buyer without issue. Please understand when the bank puts a home on the market it as been assigned to an asset manager. That is the go between of the bank and listing agent. The listing agent answers to the asset manager and the asset manager answers to the bank. They have set it up this way and you as a buyer can't change this. If your agent feels compelled to try and bully any of these parties, it could cost you the home.
Please stop watching late night TV. Those people are NOT in the real estate business, they sell cd's and dvd's. For all you know a year from now those same people will be selling how to get rich selling crap on the Internet. Find a local real estate professional to help you. If you are not sure how to choose one please read my blog on how to hire a buyers agent and the questions you should ask. This is a critical step in the process. A great agent will be worth heir weight in gold when t comes to helping you put a deal together, foreclosure or short sale. Point is the bank does NOT want to talk to you. They want you to go through proper channels to present your offer.
A short sale is typically a situation where the seller has fallen behind in their payments for a variety of reasons. They can no longer afford to stay in the home and ask the bank if they would accept less than what is owed to sell the home. Why would any bank agree to this you ask? Because statistics have shown that the 1st lien holder will recover about 80% of what is owed. With a foreclosure that drops to about 55%. But this does not mean banks will always make the right decision.
Laws vary from state to state so you need to know how the state you live in views foreclosures. In the state of Minnesota there is a 6 month redemption period after he Sheriff's sale. It is very important to know where the property currently stands in the foreclosure process. Here is the general time line in the state of Minnesota. Seller falls behind on payments. They get a few months of late notices in the mail. If the sellers do not get current the bank will typically send another letter informing them that the bank is starting the foreclosure process. Then the sellers will be served by the county sheriff or someone hired by he bank. From that day the sheriff's sale is scheduled to take place in 30 to 45 days. From the date of the sheriff's sale in Minnesota here is a 6 month redemption period where he seller could still redeem the home by paying all they owe in late payments, interest and penalties. If at the end of he 6 months they have not redeems the home, the bank takes it over and the foreclosure is final.
You as a buyer can try to buy that home on a short sale anytime during this process up until the end of the redemption period. Once that ends if your purchase is not final and closed, the purchase agreement becomes null and void because the seller no longer has rights to the property. Be careful when you hear the term "pre-negotiated short sale", I don't believe that it exists. Sure the bank may tell the listing agent that they have agreed to allow the seller to try to sell the homes short but in my experience no bank will agree to anything more than that until the offer is in front of them with every last detail.
My feeling as a real estate agent is that both can be great and both can be bad. That can be said about any real estate transaction. Be prepared, hire a qualified agent to represent your best interests and above all understand as much of the process as you can. It will make you a better buyer and help to make things work out much easier for you.
As always please consult a real estate attorney with any legal questions you may have and your accountant for any tax questions.
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