What is a Foreclosure?
As the economy continues to sputter, people are hearing more and more in the news about house foreclosures and short sales. A foreclosure on a house occurs when people are unable to keep up with their mortgage payments and because of this the lender takes ownership of the house from the borrower. When this happens the lender then attempts to sell the house, and any payments made before the foreclosure and the revenue from the sale goes to paying off the loan. If the loan is not paid off from previous payments and the sale of the home, there may be a deficiency judgment made against the borrower to make up the difference.
Another option that people have when they are behind on their mortgage payments is a short sale. This is when someone is trying to avoid foreclosure and gets the bank to agree to write off the loan amount after the house is sold to someone, even if it does not pay off the total amount owed on the loan. This keeps people from having to have a foreclosure on their credit history, while also avoiding a deficiency judgment.
Why do I want to buy a Foreclosed Home?
Many people look to buy houses that have been foreclosed on or are short sales because they tend to be less expensive than other houses, but there are some issues with buying these types of houses that can make the cost less attractive. To begin with, foreclosures can take a while, and even when they are completed it can take a long time for the people living in it to be legally required to move out. Also, when you buy a foreclosed house, the people living in the house have a period of time that they can attempt to bring the loan to current status and keep the house. So you may finalize a purchase and still not be able to get the house.
The term “short sale” makes many people believe that the house sale will go quickly, but the “short” in short sale actually refers to the fact that the bank is taking less money than they are owed. Many shortsales can actually take months. Additionally, what you offer may be accepted by the owner, but the bank that owns the mortgage can still turn your offer down.
While these types of purchases sound like a great deal, due to the lower price, many times buying a foreclosed or short sale house can be difficult and lengthy processes. People can save a lot of money by purchasing houses in these circumstances, but make sure they should be sure they are ready to spend the time and effort involved.