Short Sales and Foreclosures

Distressed Homes in Default

cash and coins in front of a brick house
••• Big Stock Photo

Not all homes that go into default go all the way through foreclosure. Many sell before the notice of default is finalized. Home buyers and investors are attracted to short sales and foreclosures because they want to buy a home for less than market value. They often expect a "deal." Sometimes, sellers in default and buyers who want to buy a short sale or foreclosure can see eye-to-eye and enter into a profitable transaction for both parties.

But it's not always an easy road to navigate. Distressed home sales are often complicated and owners have legal rights when in foreclosure. Both sellers and buyers should seek legal advice before entering into such a contract. In some states, you need to give the seller a right to cancel and if you do not, they can rescind the contract years later.


Home Sellers in Foreclosure


It's all too common for sellers in foreclosure to want to ignore the problem and hope it will go away. Some stick their heads in the sand. But help is available. Sellers of foreclosure have options apart from letting the bank seize their home.


  • How to Stop Foreclosure offers help for owners who want to keep a home through reinstatement, forbearance, mortgage modifications or repayment plans.
  • Short Sales for Sellers clarifies how to transfer title to a buyer before the redemption period ends by persuading the lender to accept less than the unpaid mortgage balance. Not all lenders will accept a short sale, but most will. This covers what lenders want from sellers. Negotiation and price is key.
  • Foreclosure and Short Sale Taxes discusses how the I.R.S. will treat a foreclosure or short sale for tax purposes. It's called debt forgiveness, and under some tax rulings, sellers could owe the government taxes even though the sellers lost money on the sale.


    Tips for Buying Foreclosures and Short Sale Homes


    Not all foreclosures and short sales are profitable. To pull a home out of foreclosure, buyers need to make up back payments to the lender, pay all imposed fees and either pay off the loan or make arrangements to sell the property. Few lenders will let a buyer assume an existing obligation, not like in the old days.


    • Buying Distressed Homes involves three ways to purchase: from the seller in foreclosure, negotiating a short sale or buying from the lender after a public auction. Read this carefully as investors in some states cannot be represented by a real estate agent.
    • Buying Short Sales details why the process is complicated and can take much longer to close than an ordinary transaction. Not all short sales are profitable, and this article explains why.
    • Buying Foreclosures is about buying a distressed sale before the home goes to a public auction, and it involves negotiating directly with the seller. Buyers also have the option of bidding on a foreclosure at the public auction, but know the procedures first.
    • Drawbacks to Foreclosures talks about the repercussions and inherent problems that are often present when buying a foreclosure. Buyers who bid at public auctions will benefit from getting as much information as possible beforehand.
    • Defaults Hit Home Values. Nearby homes will feel the effect, which could pull the market value of a newly purchased short sale or foreclosure even lower. This article goes into detail about how appraisers determine the value in neighborhoods with distressed home sales.


      Fixing Up Foreclosures and Short Sale Homes


      One way to make money in real estate is to "buy low and sell high." Couple that principle with fixing up the home or improving it, and the amount of profit can be even greater. Besides, many distressed homes fall into disarray and require repairs.


      • Repairs Before Resale can boost bottom-line profit. But not all repairs or improvements return 100% of an investment. Read why.
      • Top Do It Yourself Mistakes. This article covers 10 common errors home owners make when trying to flip a house. Don't think about buying a foreclosure until you read this.
      • Fix-Up and Sell is a five-part series with links at the end of each article to the next. It's a first-hand description involving simple to complex remodeling projects that were completed on five flipper homes.

        At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.