Many of my customers look at foreclosures and short sales to try to find a deal on a new home. There has been a lot of media hype in the last few years around them, and almost anyone will tell you that you can buy a house cheaper this way than through traditional means.

But there is an equal amount of media buzz surrounding the potential pitfalls of foreclosures and short sales. Some say that you can’t get an inspection on a foreclosure, others say you need to buy cash, and still others will tell you that if you buy a house that is in foreclosure or being sold short, that you will wind up with a house that has no wiring or plumbing.

And I can promise you that none of those pitfalls are true. You can inspect any home you buy, unless it is specifically designated “as is,” you can absolutely get a mortgage for either a short sale or a foreclosure, and any house which has been stripped of wiring will be reported to you in an inspection, meaning you wouldn’t buy the house.

So with that in mind, lets circle back to the primary question: what is the difference between a foreclosure and a short sale? And the answer lies in ownership. A foreclosure is a property which was taken over by a bank from the owner for nonpayment of a mortgage. These are often homes which depreciated in value, leaving the homeowner upside down on their mortgage. Then, something changed in the homeowner’s life which made it difficult to pay the mortgage, and because there was no remaining equity, the homeowner had to give up the house.

A short sale, on the other hand, is a property which is still owned by the homeowner, but the homeowner has either stopped making payments or is about to stop making payments on the mortgage. These homeowners contact the bank, explain the situation, and ask for permission to sell the house for less than the amount they owe due to the depreciated value. These houses can be more complicated to purchase, so it is always advisable to contact a mortgage professional before placing an offer on a short sale.

If you are looking into buying either a foreclosure or a short sale, please feel free to contact me and I will help you through the process. If you have anything to add about the difference between a foreclosure and a short sale, please leave a comment.