We’ve all heard the sad news that foreclosures are increasing here in the Aloha State. Of course that also correlates to a lot of short sales as well. The reality is that this does present a buying opportunity for people who dreamt of owning a home over the past few years but couldn’t afford it. Not only are values lower than they have been in years, but the large number of foreclosures and short sales have banks ready to sell the properties at less than market value. Is this too good to be true? Let’s take a closer look.

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What a Short Sale is…

First of all, what is a Short Sale? Is it different than a foreclosure? Or different than a ‘bank sale’, bank owned property or ‘REO’? They are all related, but there are critical differences between each. A short sale is an event where the owner of a property wants to sell his/her house, but owes more on the house than it is currently worth. So, in order to sell the property, the owner must obtain permission from the bank that services the loan on the property (because the sale amount isn’t enough to pay off the loan).

What it is Not…

While a short sale is typically done using Realtors, a buyer and a seller; a foreclosure sale is done through the court system. A foreclosure happens because someone hasn’t made the minimum payments on the loan and the court is selling the property to pay off the existing lender. Sometimes the lender itself will buy the property and then sell it later, hopefully for more than the other bids at the foreclosure sale. Foreclosures are a topic for another post because purchasing one is far different than a normal transaction.

A ‘bank sale’, ‘REO’, or bank owned property is typically sold in the same manner as any other home, with the only difference being that the bank owns the property rather than an individual. In this case, the bank is in control of the property, the previous loan issues have already been resolved, so there isn’t the same process to go through as a short sale. These transactions typically happen more quickly and there are fewer unknowns, although, the condition of the home may be an issue since it may have already gone through the foreclosure process.

Stay tuned for our next post which addresses short sales and the short sale purchase process in much more detail…