Short Sale vs Foreclosure: Which One Can You Get To Close Faster

Q: I went under contract to buy a house on six months ago. This is a short sale, and I understand that multiple lenders are involved. But I have been more than patient. What can I do?

I can’t seem to get anyone to listen to me. Don’t the banks want this to work out?

A: I’m sure that someone besides you wants this sale to work out – the seller! The problem is that each lender has to agree to the short sale and lenders are drowning with the numbers of short sales, foreclosures, and loan modifications that are stacked up.

For a short sale, the lender will require quite a bit of documentation from the seller to determine whether the short sale is legitimate and whether the seller has the ability to make up any deficiency. The lender also would want to determine if it would get more money if the seller simply defaulted on the purchase and the lender foreclosed on the property and sold it off.

While these are some of the considerations a bank may have, the underlying problem with lenders and short sales is time.

Banks have too few people on staff to handle the load of short sales and other requests being made since the start of the housing and credit crisis. The bank takes in the requests and then must evaluate each request to figure out how much of a hit the investors will take on the loan in a short sale. The lender also tries to figure out who else is losing money on the deal, like other lenders..

It will be a lot faster and easier for you to buy a foreclosure than a short sale because the bank has already taken back the property and wiped out the liens. In a foreclosure, the lender sues the owner for the amount owed on the loan and then can proceed to take title to the home to satisfy the debt. Once the lender has ownership of the home, the lender doesn’t need to make any determination about the borrower or the borrower’s finances. The lender’s only interest at the point it takes title to the home is how to get the most money possible from the sale.

Lenders are typically extremely motivated to sell foreclosed property. The faster the bank sells the home, the less they will lose on the sale.

Unfortunately, short sales can quite commonly take up to 6 months or longer to work out. If I were you, I’d think about canceling the contract and looking for a foreclosure to buy instead.