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Health & Fitness

What's the difference between Short Sales and Foreclosures and what does it mean to you, Mr. Buyer and Mr. Seller?

Atlanta Real Estate discussions on Short Sales and Foreclosures, Atlanta Relocation

Back in the day, the only option you had when you couldn’t pay your mortgage was to simply abandon your payments and your home and walk away. The bank would then takeover your home and sell it at a price closer to what was owed and not necessarily at market value. The result to your credit was disastrous and felt like “the end of the world” for many people. The houses were often left in horrible condition as owners were so unhappy that the bank could not “work with them” and show leniency. The owners would move out but not before stripping the home of anything of value: appliances, light fixtures, hardware, wiring! Anything they could get their hands on!

This made it risky and difficult for buyers to purchase anything that had been foreclosed because they were so worried about the condition of the home. The utilities were not active so a proper inspection was not possible. It was a risk but the buyer took on the risk since the price was considerably lower than a regular market sale.

Fast forward to today, we there are several new options for sellers which in turns provides options for the buyers. The sellers can now contact their bank (and most banks have a whole department for this) and apply for either a loan modification or short sale. Loan modification indicates being able to work with a seller, if they are behind or about the behind, to restructure the loan and allow the seller to keep the house. The Short Sale process is different. Typically, but not always, the seller is in a hardship position. They have likely had a change of lifestyle and cash flow (divorce, relocation, job loss, death) which causes them to have issues paying their monthly mortgage. They are either behind on the mortgage or about the be behind. And they are upside down in their mortgage which means what they owe on their mortgage is MORE than the current market value. So they can’t refinance the home, they have no equity in the home and the home will not appraise with enough income for them to pay off their mortgage. That is why some sellers apply for a short sale with the bank, asking the bank for “forgiveness” or sympathy regarding their situation.

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But not always! Lately, more and more people have applied for short sales without hardship! And more and more banks have accepted.  The ethics of this can be discussed in a separate ad infinitum but for now, it is a reality in our market.

What does this mean for you? As a seller, you have far more options when it comes to selling your home, modifying a loan, short sale or foreclosure. In a short sale, most sellers are hopeful to get the best offer for their house so they keep the home in great condition. So for a buyer it’s like getting a foreclosure price as a market value condition. The banks don’t always “erase” the entire mortgage debt. It is often considered that the remainder of what is owed becomes a short term loan or promisory note or seen as income on your taxes. You’d have to discuss this as well as the credit implications (which are much less painful than a foreclosure) with your accountant.

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As a buyer, the opportunity to purchase a home at a spectacular price is abundant. The foreclosures are forced sales but a short sale is something with a little more control. They take longer to process, 3-6 months minimum, whereas a foreclosure is a normal 30 day closing. In a short sale, since the seller is still the owner, there is more likely the opportunity to have utilities on and a proper inspection. The seller is working with the bank to make a smooth transaction at the higher possible price so the condition of the home is also better.

As real estate agents, we work hard to present all the options to our clients and understand how to process all the scenarios. We are staying active with the trends and the economy. Make sure you utilize a realtor in any real estate transaction. We at Top Atlanta Real Estate are here to help with any Atlanta relocation needs. Call us today! 404-234-1196 www.topatlantarealestate.com

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