Q: What is the difference between a short sale and a foreclosure?
A: A short sale involves the sale of an “under water” property, whereby the proceeds of the home sale will be LESS than the total mortgage balance and the owner cannot afford to pay the balance of the debts against the property. Purchasing such a property requires that the bank agree to accept less than the amount owed on the property, releasing the lien on the property. According to realtor.org, “ A short sale is a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan”
Houselogic.com explains foreclosure as “The process whereby a lender, such as a bank, seeks to repossess a property where the owner has failed to comply with the terms of the mortgage or promissory note, such as not making a payment. Once the property has been foreclosed, the bank can then sell the house, using the money to pay its costs.”
AOL Real Estate offers an explanation to help distinguish one from the other, in that, ”Short sales can also be referred to as ‘pre-foreclosure sales’ which, as the name implies, precedes the home being officially repossessed or foreclosed on by the lender. That is, the property is sold much earlier than the months it typically takes to reach foreclosure, allowing all parties to move on from the transaction sooner.”
CNN is reporting that the Federal Housing Administration has some good news for real estate flippers–the investors who buy homes on the cheap so that they can quickly resell in order to turn a profit.
The news report said this of FHA: “In an effort to help stabilize housing prices and unload some of the foreclosures that are flooding low-income communities, the mortgage insurer extended a waiver of its anti-flipping regulations through 2012.”
The waiver, which was issued in 2010 and expired at the end of December, suspended regulations that prohibited the agency from insuring mortgages used for purchasing homes that are bought and resold in less than 90 days.
Acting FHA Commissioner Carol Galante explained: ”This extension is intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight.”
The ban was first initiated as a preventative measure against predatory flipping, in which homes when homes are quickly resold at inflated prices to unsuspecting buyers. However, the extension of this waiver through 2012 may offer help to many low-income communities that continue to struggle.
Foreclosures have been especially problematic in many low-income neighborhoods, causing declining property values and surges in crime and other “social ills.” In such neighborhoods, “Real estate flippers often rehab these damaged homes before reselling them, improving conditions for neighborhoods.” FHA mortgage insurance plays a crucial role for many low-income communities. In fact, many of the loans in these communities could not be issued without FHA backing.
CNN reports that in order to qualify for the waiver, certain conditions must be met:
The report states that, “Since the waiver went into effect in February of 2010, the FHA has insured more than 42,000 loans to purchase homes that were being resold within 90 days. These totaled more than $7 billion in mortgage principal.”
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