Foreclosure, Pre-foreclosure, and Short Sales. Tips for First T…

What is a Foreclosure

Buying a house for the very first time not only is a huge financial responsibility, but it’s also pretty scary. Home buying is scary because the purchase of a house is a big commitment but also because of all the jargon. It’s obviously important to understand this jargon so you can make the best decision when buying a new home.

Now to explain some of the most common (but misunderstood) jargon in real estate: foreclosure, pre-foreclosure, and short sales. If you are a buyer who wants to get the most bang for your buck and is interested in buying a house that isn’t in move-in ready condition to get that deal, these terms are so important for you to understand.

So, what is a foreclosure? A foreclosure is when the bank or lender has taken back the house from the homeowner typically because they haven’t made payments. And for those of you looking into buying your first house, the bank gives you many warnings before they take back your house, this is by no means a surprise to the homeowner. The banks want to work with you because they are not in the real estate business.

If a foreclosure is the bank taking back a house from the homeowner, how does that help me get a deal? Banks are not in the real estate business and do not want to own houses. They would rather take a cut on their losses and sell the property so they can start getting payments again. Foreclosures are sold at an auction, through the bank itself, or by short sale (which will be explained in detail later in the article)

How is pre-foreclosure different than foreclosure? Pre-foreclosure is just what the word implies; it is before foreclosure. Pre-foreclosure is the stage when the homeowner is late on payments, and the bank is telling the owner they must pay or the bank will take the house. If the owner continues not to pay the house will go into foreclosure, but if they come to an agreement with the bank the pre-foreclosure is dropped. If you ever find yourself in this situation, the best thing to do is openly communicate with the bank. They would rather you pay and stay in your house than the bank taking the house back. Foreclosures are a lot of work on their part.

Going into Foreclosure

Now, what is a short sale? Does that mean the house will sell fast? Unfortunately, the name short sale can be misleading. A short sale is not a quick process but is often a very time-consuming process. A short sale is when the homeowner owes more on their mortgage than their house than it would currently sell. Therefore, the owner is asking the bank to take a short payoff (or loss) on their loan. Normally short sales are only when the house is in foreclosure, and the bank would rather get some money back rather than none at all.

First time home buyer, you are now prepared to venture into the world of foreclosure, pre-foreclosures, and short sales. However buying a house can always present unique situations, if in doubt contact a real estate agent or an attorney for more in-depth information about the home you are looking to buy.