Gentle Readers:

There have been so many properties in danger of foreclosure, or have become bank-owned. There is a very confusing difference between these two. I'll explain what the difference is, and what to expect.

Take a deep breath. Here it is:

SHORT SALE (definition - the lender will not be paid in full from the proceeds of the sale)

A homeowner cannot keep up his mortgage payments. He is "upside down" in his mortgage, meaning that he owes more than he could realize from the sale.

Example: he owes $100,000 for the house. He can sell it for $110,000. That sounds great, but after he pays the costs for making the sale, he can't pay the bank in full for what he owes them His costs are brokerage fees, attorney fees, filing fees, transfer taxes, and so on.

He then tells the lender that he needs to sell the house, and asks permission to settle with them for less than the full amount. He has to prove need via income tax returns, wage statements, medical expenses, etc. that he has a hardship.

The lender will then allow him to do a short sale. The seller doesn't really want to sell, but must.

So, the Realtor has to tell the seller and lender how much he thinks he can get for the house on the open market. They agree on a listing price.

A buyer falls in love with the house, and then makes an offer. The seller accepts. (I know this is a simplification of this process, but allows us to move onward.)

The LENDER must now accept. If it is a significant loss for the lender, and he can't prove to his board that this is the best they will be able to do, they will reject the offer.

If the lender is convinced that this is best deal he can possibly make, he will accept the offer.

If rejected, the lender will eventually move to the next step of foreclosure.

After the lender forecloses, meaning they now take ownership of the property, the next step is usually to hold a public auction. The home almost never sells at this auction, but it is the step taken to prove due diligence on the part of the lender - he has to prove that he has done everything in his power to recover the most money possible on this bad loan.

At this point, the property is now BANK-OWNED

It is again put on the market, usually at a much-reduced price. When a buyer's offer is accepted, parties proceed with the sale. Some things of interest - often they will obtain less for the property than if they had just approved the short sale in the first place, and it costs them an additional $40,000 to $50,000 more!

I've seen time and time again where my offer to a short sale was rejected, only to have it eventually sell for much less than we offered!

The issue to be concerned with is that the lender may accept another offer at any point during the transaction - even up to the day of closing. This usually doesn't happen, but it is a possibility that you could lose the house at the last minute. This is a right they reserve.

Also, you can be assured that the lender will make no repairs.

Mary L. Chabot - Realtor
Real Estate Agent
508-847-0654
Mary.Chabot@NEMoves.com

Short sale vs. bank owned   New EPA Rule