What is the difference between short sale and foreclosure?

Provided by Trulia


If you have found yourself behind on mortgage payments recently, chances are you have been anxiously debating your next step. Do you let the bank take the home back, hand them the keys, and ride off into the sunset, or do you think more creatively and consider other options? Rather than tossing the dice on your financial future, let's explore the difference between a foreclosure and a short sale.

Foreclosure: A foreclosure is the legal term used to describe how a note holder (your bank or lender) goes about stripping you of the title to your home. In the real world the process can take anywhere from a few months to well over six months from start to finish, depending on the type of financing instruments that were used to secure the debt. But losing your home is only the beginning. Once completed, depending on the borrower, a foreclosure can also result in a credit score reduction of 200-300 points. This means you will have a much more difficult time securing credit in the future when you wish to purchase a car, obtain lines of credit, or even get new credit cards. When you do find someone to give you a loan, be prepared to pay much higher interest rates. To top it off, if you are searching for a job, be aware that many employers conduct a credit check on new hires and a poor credit score can be used as a reason to toss your resume.
So if a foreclosure is so bad, what other option can a homeowner consider? Many homeowners use a short sale to avoid a foreclosure.

Short Sale: A short sale, sometimes known as a "pre-foreclosure sale", occurs when a bank agrees to accept less than what is owed on a home in order to avoid a foreclosure. Remember, lenders don't want to own your home. Because of this they will often accept a reasonable loss to avoid the costs and hassle of adding another home to their growing national inventory. Though a short stale will still hurt your credit score, it will be looked upon by future creditors far more favorably than a foreclosure. For instance, Fannie Mae recently adjusted their guidelines to require only a two year waiting period for sellers who used a short sale to purchase a new home. At the same time, they lengthened the waiting period for sellers who have fallen victim to a foreclosure to five years. Why the difference? A short sale is seen as a satisfaction of at least part of the debt, rather than a complete write down. In addition recent federal legislation, in most cases, has removed the burden of a tax liability for the forgiven debt on primary residences.

So which is better a foreclosure or a short sale?

Without question a short sale is almost always the best option. To explore using a short sale to sell your home, talk to a local agent, preferably one with experience in pre-foreclosure sales, and request a short sale package from your lender as soon as possible.

Property Preparation

Provided By: Keller Williams


It’s time to get your house into “showing and selling” condition. Most of us don’t keep our homes in the condition it would need to be in to sell. Over the years those boxes in the corner of the garage just seem to multiply on their own. Things have broken that we just never get around to fixing and some things have just worn out. We just accept the fact that they will always be this way. It is this frame of mind that you have to break out of in order to get your house ready to show. How your house looks will have an immense impact on how quickly it sells and whether or not you get full market value for it.

First impressions are very important and you only get to make one. Approach your property from the buyer’s standpoint. What needs to be changed to make a good first impression? This may mean that all you do is prune the trees and shrubs. On the other hand, it may mean that you completely repaint the house, inside and out. Do a “curb to door” check. Give the potential buyers a clear path to enter the home. The fewer obstacles between the buyer and the true appeal of your house the better. Keep in mind that over time we become accustomed to our surroundings. What’s normal for you may be detrimental to the buyer.


Make your house look as spacious as possible. Organize your closets and kitchen cabinets, and if you have things stored in the attic or basement, make sure they are presentable. If you are showing during the day, pull back your curtains and drapes to show how bright and cheery your home is. If you are showing at night, turn on all of the lights to create a warm and welcoming environment for the prospective buyers.


A house that is marked with your personality and style may be harder to sell. You might even consider such things as removing obvious clues to your political affiliation and tucking away any biased literature that may be visible. This will reduce distractions and help the buyers to visualize the home as their own.


Your agent can save you time and money by providing an objective and expert opinion on what needs to be changed or improved. They know what the buyers are looking for because they are in the marketplace everyday. They will perform an analysis of the entire property and, taking into account the state of the market in which you are selling your house, point you to the changes that need to be made in order to sell it for the most amount of money and as quickly as possible.

Five ways to avoid foreclosure

Provided By: Trulia.com


Over the last few years, as real estate values have plummeted and the overall economy has slipped into recession, foreclosures have been on the rise. Perhaps you or someone you know is facing the imminent threat of losing their home. Don't despair - in this economy every income class has been affected. These are good people; they aren't deadbeats or irresponsible borrowers. They simply got caught in a financial storm that has become impossible to escape.
So are there ways to avoid a foreclosure and escape becoming a casualty of the current economic Tsunami? Yes! Let's take a look at five ways to avoid a foreclosure:

1. Be proactive

   The best way to avoid foreclosure is to take control of your financial destiny before a problem presents itself. For instance, if you know that you have one of the tens of thousands of loans with adjustable rate mortgages getting ready to reset to a higher rate, act now to refinance the loan at a lower fixed rate. Often your current lender will be willing to refinance your current mortgage quickly and easily, but be sure to shop rates by exploring local lenders and banks. You can view comprehensive comparisons of many national lenders at Trulia Mortgage.

2. Apply for hope

   If your current lender is unwilling to refinance the loan and other lenders have turned you down, you may wish to consider the HOPE program. This is a government sponsored program for borrowers at risk of default and foreclosure. The program provides new 30-year fixed rate mortgages that are insured by the Federal Housing Administration (FHA). But be aware that these loans come at prevailing interest rates and borrowers must agree to share in any equity appreciation when the home is sold or refinanced at a later date.

3. Request forbearance

   If your financial situation has changed, perhaps you lost your job or had a medical emergency and you cannot make your payment, you may want to request forbearance from your lender. Forbearance simply means that the lender allows you to skip one or more payments while you get your financial house in order again. This doesn't mean they give you a free ride however. Missed payments are generally tacked back on to the end of the loan and the interest on the note continues to accrue during the deferment.

4. Request loan modification

   One key item to remember when facing foreclosure is that your bank or lender does not want your home back. Because of this, if you have any reasonable chance of repaying the debt, they will often work with you to create a plan that will meet your financial needs. One way to kick start this process is to request a loan modification. A loan modification means that your lender agrees to change the terms of your current mortgage to fit your current financial situation. Often this can include a reduction in the interest rate, extension of the term of the note, or even a principle balance adjustment.

5. Consider a short sale

   It's likely that if you are facing foreclosure you have considered selling your home. The problem comes if you owe more than the home is worth. To deal with this challenge, many homeowners request a short sale from their lender. A short sale means that the lender agrees to accept less than what is owed on the home in exchange for not being forced to foreclose on the property. However, be aware that the timeline for accepting an offer subject to a short sale can last from a few weeks to a few months as lenders are swamped with similar requests from thousands of borrowers nationwide.

The best advice, as hard as it might be to follow, is to remain calm and unemotional when talking with your lender to. Remember the person you are talking to isn't the bank, they are an employee of the bank. To achieve the best results, write down the points you want to cover during each call, take notes of the conversation, and always record the date and time you called. In many cases your hard work will save you from being a foreclosure casualty.

Re-negotiating the sale: how and when sales are renegotiated

Provided By: Trulia.Com


Standing on your lawn three days ago you shook hands with the buyer. Everyone was smiling and laughing and you thought you had a deal. But now suddenly the buyer wants to re-negotiate the sale. Should you tell the buyer to go fly a kite or is it better to bite your tongue and try to still make a deal happen? As most veteran real estate brokers will tell you - it depends.
Even the simplest real estate transactions involve conditions and contingencies which can cause a buyer to reconsider the purchase of a home. For instance, a buyer may discover easements that allow neighbors to cross the backyard, or a nest of red ants under the front porch. Rather than let the buyer ride off into the sunset, prudent sellers would be wise to at least attempt to re-negotiate the sale. On the other hand, buyers who want to change the terms of the sale as a result of buyer's remorse may need to be shown the door.
To prepare for the times when a sale may be re-negotiated let's examine the key areas buyers will be most concerned with during escrow:

1. Disclosure statements

   Generally buyers will have an opportunity to review and approve a sellers disclosure statement prior to closing as a condition of sale. A disclosure statement is a document that is designed to reveal any material defects known by the seller to the buyer. In many cases these forms will be delivered after the buyer has made an offer but before closing, giving the buyer an opportunity to reject items revealed on the report they weren't previously aware of. To minimize the risk of this occurring, consider delivering the disclosure statement to the buyer before they make an offer.

2. Preliminary title reports

   Once escrow is opened the buyer will receive a copy of the preliminary report. This report will reveal all (or most) of the recorded documents that affect the title to the property. These will likely include easements, licenses, covenants, conditions, restrictions, and outstanding mortgages. If an item jumps up that a buyer wasn't expecting to see, it can be a problem. An example might be an expired access easement, a restriction on the number of vehicles a buyer can park on the property, or an unexpected tax assessment. To avoid surprises, consider requesting a preliminary title report from a local title company before you receive an offer.

3. Inspection reports

   Inspectors are hired by buyers to ensure that the home they are purchasing doesn't have any hidden problems that even the seller may be unaware of at the time of sale. Once received, a negative inspection report can give a buyer a window of opportunity to either withdraw from the sale or attempt to renegotiate the sale. To avoid surprises, many sellers conduct a pre-inspection of the home by a licensed professional. By dealing with any negative issues in advance a savvy homeowner can deliver a "clean" report to the buyer. Be aware though that any issues discovered during a pre-inspection will likely need to be disclosed to a buyer whether you fix the issues or not.

4. Appraisals

   As over 90% of buyers will utilize some type of financing to purchase their next home, it's highly likely that your home sale will involve an appraisal. As appraisers and banks have taken the brunt of criticism for the recent market meltdown, they are much more cautious when assigning fair market value to a home. The result is that an appraisal can often come in lower than both the buyer and seller have agreed to. If this happens, be prepared for the buyer to ask for the price to be adjusted downward to meet the appraisal price. To help avoid low appraisals, many sellers and seller's agents attempt to provide the appraiser with the comparable sales that were used as a basis for the listing price, as well as notes on any improvements that have been done to the home that would not necessarily be obvious.

The question to ask yourself if a buyer is attempting to renegotiate the terms of the sale is - Am I OK with this sale failing? If the answer is no, consider how far you will go to keep the sale together. What will you bend on? What won't you bend on? The best negotiators are those that see the big picture. They know their priorities and are willing to make small concessions to achieve bigger goals.