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Short Sale Does Not Equal Foreclosure

by Jennifer Kirby on January 7, 2009
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There seems to be a misconception out in the public, and among some real estate agents, that a home being marketed as a short sale will shortly (no pun intended) become a foreclosure. I hate to burst the bubble of anyone waiting for a home they really love to go into foreclosure, just because it is a short sale, but that will not always happen.

Short sale, in the simplest definition, just means that a home is being sold for less than the current mortgage. It has nothing to do with the owners ability to make payments, in most cases. Yes, there are those short sales where the owner is reducing the price to entice a buyer, before the bank forecloses, but many sellers in today’s real estate market are selling due to relocation out of the area, downsizing, etc. Not every homeowner out there is having financial trouble.

Case in point, I had an agent present his buyer’s offer on one of my listings recently. When the sellers refused to come down to the buyer’s price, the agent asked me when the home was going into foreclosure and when the redemption period would start. I laughed out loud and simply stated that the owners are not going into foreclosure, and that the reason the buyer’s offer was rejected was due to it being 20% below list price. Obviously, this agent was not well educated, or just had no clue. Anyway, it was good entertainment… most likely influenced by the media.

If you were to listen to the nightly news or read the local paper, you would think that 90% of the homes for sale are bank owned. Many buyers believe they can low ball every seller, because the media says sellers are desperate. Folks, it just isn’t true. Just because it is a buyer’s market, doesn’t mean that sellers have to take any offer that comes across their table.

Now, back to the short sale. With the decline of market value here in Minneapolis and Saint Paul, some home owners who purchased in the last four years are finding their homes are worth less than what they owe. Some do not have the cash to make up the difference when the home sells, so the only solution is negotiating a short sale with the bank. They can however, still afford their monthly mortgage payments.

Bottom line: Don’t get sucked into the trap of assuming a short sale, or low priced home is going into foreclosure. Usually, it just isn’t so.

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