Bank owned vs foreclosure vs short sale

Potential homeowners can purchase a house that are in the process of being foreclosed or have been foreclosed. Homeowners who default in payment and are not able to modify their loans for a lower payment lose their homes. Therefore, this homes are sold at reduced prices, providing a bargain for buyers.

When the homeowner finds it hard to make his mortgage payments, the mortgage servicer may accept the home to be sold in a short sale. In the short sale, the lender allows the homeowner to sell the home for less than the outstanding loan amount. Just from the original word, the sale is “short” of the outstanding amount. The lender has to accept the sale amount which can take from 3 months to a year.

Distinct from a short sale, foreclosures are filed by the borrower. Homeowners who fail to pay their loans —anywhere from three to six months— may go through the foreclosure process filed by their lenders unless they can keep up with their loans. However different states have different foreclosure proceedings which includes the types of notifications the lender must provide, as well as what options the homeowner has to bring the loan up to date. Laws also stipulate how long a bank has to sell the property.

A bank becomes the owner of a property once a homeowner defaults on the loan and the right of redemption period has expired. The house is foreclosed. This right of redemption varies from state to state. In Illinois, foreclosure takes a minimum of seven months. In a judicial foreclosure sale, the bank becomes the owner, allowing the institution to recoup any losses suffered from the loan default.