What Is a Short Sale — And What Does It Mean for Home Buyers?

Image of the outside of a house in a city. It has a white picket fence and nice landscaping. Captioned: What Is a Short Sale — And What Does It Mean for Home Buyers?

When you’re browsing the listings, you might encounter the terms pre-foreclosure or short sale. What’s the scoop on these homes?

It all starts when homeowners with mortgages find themselves under water — property values drop, and a homeowner owes more on the loan than the house is worth. Further, the owner has fallen on difficult financial circumstances and is unable to find assets or sources of income to keep covering the regular monthly payments. Hoping to avoid foreclosure and keep some control over the transfer of the property, the homeowner asks the lender to approve a short sale of the home — meaning the lender will agree to receive less money than the outstanding mortgage balance from an unrelated person who buys the house.

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What to Know Before You Buy a Foreclosed Home

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Thinking of buying a foreclosed home? The lower prices for foreclosures among the listings are certainly tempting! Even better, a lower price translates to lower property taxes. But given the potential pitfalls, will the deal be worthwhile?

Buyers’ experiences vary widely. States vary, too, in laws and policies related to the way foreclosures are handled. That noted, here is a general planning guide to buying a home in foreclosure.

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Can Filing for Bankruptcy Save a Home From Foreclosure?

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It’s not the easiest topic we cover, but we know foreclosure sales will be on the uptrend as the U.S. works for financial recovery from a global public health crisis. Many readers are currently stretched thin by their mortgage obligations combined with other debts. For some, the financial stress will be overwhelming. If any helpful arrangements offered by the government or the lender cannot be sustained, homes can ultimately be taken back by the lending banks.

Under your mortgage agreement, your home is collateral in case you stop repaying the loan. So, in a default situation, a lender will follow the process agreed upon in the contract, in order to sell the house and use the sale proceeds to pay the loan debt and the administrative costs of foreclosure. Many people are anticipating that possibility, depending on how feasible it is for them to adjust to our abruptly changed economy.

For the owner motivated to keep the house, can filing for bankruptcy help? It can, if the homeowner has a regular source of income. Let’s look at how this works.

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