Aloha. This is George Krischke, with Honolulu Hi 5.
Sometimes we get asked,
‘What is a foreclosure versus what is a short sale?’ Today we’re going to touch on that.
Foreclosure versus short sale:
First, a foreclosure is when a lien holder, in most cases that’s a bank … when a lien holder files legal documents to take possession of the property because the homeowner defaulted on their obligation to make payments. That process can take time and money for the lien holder.
A short sale, on the other hand, is when the lien holder will approve a sale of the property even though the proceeds of the sale are not enough to pay off the balance that’s owed to the lien holder.
Banks will often prefer the short sale. That’s where they will accept less than the balance owed in
order to avoid having to foreclose on the property. It’s time and money saved.
To get a short sale approved, there are a few things that need to take place. The homeowner that’s trying to get the short sale approved actually has to qualify for the short sale approval. The same way the homeowner had to qualify to get the loan in the first place and prove that he is in a financially strong position to get the loan; for a short sale, the homeowner has to prove that he’s in a financially weak position so that the bank will agree to approve the short sale. That could include … he has to prove
financial hardship, and that usually includes 2 things:
1.) Either the homeowner lost his job, lost his income, or any circumstance that make
it difficult to continue with the payment obligation for the property. The
bank will take that in consideration.
2.) The homeowner has to also prove that he does not have any other cash to make up for the shortfall for
the amount that’s owed to the bank. The lien holder, the bank, will usually order an appraisal and determine the true market value, and carefully scrutinize the homeowner’s financial hardship. That’s all required before they approve the short sale.
That’s it for today. Thanks for watching. ~Aloha.