Are Short Sales better buy then Foreclosed homes?

In this current market, I would say Short sale is better and only viable option for many investors when we have low inventory of foreclosures. Few years ago, we had a very large inventory of foreclosed homes and only few investors took advantage of the opportunity to buy some good and cheap properties. Now everyone wants to invest in real estate but it’s too late to find great deal. It is even too default to find a decent foreclosure deal. Before we go further let’s get some basic lesson and later talk about Short sales.

The foreclosure process in Texas is very short and simple. Homeowners in default on their mortgage can, by law, lose their home in as few as 41 days. It is a a Three-Step Process. When a borrower defaults on their mortgage loan their lender may initiate the foreclosure process. The lender is required by law to send a written notice to the borrower allowing the borrower 20 days to “cure” or pay in full the amount owed to bring the defaulted loan current; otherwise, the foreclosure will be initiated. After the allowable 20-day cure period, at least 21 days must pass before a foreclosure sale is scheduled at which time the lender is required to post the notice of foreclosure at the courthouse and file the notice with the county clerk as well as notify the borrower of the date and time of the foreclosure sale.

Short Sale
A short sale is the sale of a property for less than what the owner still owes on the mortgage. A short sale is an alternative to foreclosure when a homeowner needs to sell and can no longer afford to make their mortgage payments. The lender agrees to accept less than the amount owed to pay off a loan now rather than taking the property back by foreclosure and trying to sell it later. Lenders agree to a short sale because they believe it will net them more money than going forward with a lengthy and costly foreclosure process.

Why Short Sale is better?
We are not talking about sellers so we don’t have to worry about whether to do Short sale or Foreclosure. As Buyers we want a good deal. Buy with decent equity or atleast buy low to make changes and add equity on the property.

Currently many lenders are pro short sales as there are lot of changes happened in the last year to make it easy for the borrowers. So many sellers are given chance to do short sale and get out of their home, it is good for buyers as well. Only problem, buyers might have to wait little longer to get the deal closed depending on the lender. But it is way much better than competing against too many buyers who are waging the price war. That’s whats happening for the past year or so in many areas in the Houston Market.

Every foreclosed property gets bid from multiple buyers, it’s good for the seller but not good for the buyer/investor. If you are good investor, you don’t participate in the buying war but you did you know when to get out as soon as the numbers doesn’t work out. Since this happens all the time, it’s totally a waste of time. Instead you find few short sale properties and check it out, work out the numbers and be the first one to make an offer. If the lender agrees and proceed forward, you should be all set in a month or two to close on that house.

You usually don’t have competition on the short sales as many buyers don’t want to wait for too long and don’t like the uncertainty. In the foreclosure deals, there are many out of state investors who don’t even look at the property and make a robo offer. In short sales, same thing happens but many seller agents don’t like to work with those offer due to the complexity involved which makes it easier for local investors.

To conclude, you have better chances on making a deal when working with Short sale properties at this market condition compared to foreclosures since short sales inventory is much better than now.

About Vijaianand Thirnageswaram

I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.

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