A distressed sale, (Foreclosure or Short Sale), is one where the equity (balance after deducting money owed against the property) is insufficient to satisfy all of the debts. Foreclosure is a legal process where the borrower and owner of the mortgage have defined rights and responsibilities to allow the opportunity for both to protect their interest. A Short Sale is simply a term to define a real estate transaction where the borrower, a potential buyer, and the owner of the mortgage (bank, investors, loan servicer) negotiate to satisfy the debt for less than owed.
Distressed sales are being mapped to help communities secure federal funds to address social and economic consequences in high density foreclosure areas. Follow the link to read Pat Schneider's Capital Times story.
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It's worth noting that while the appraiser must not include foreclosures in their mortgage appraisal, home buyers do consider all sales data when calculated their opinion of fair market value. Web sites such as Zillow.com do not discount foreclosures in their market trend and Zestimated Market Values. With that information in hand, the consumer is predisposed to stay away from homes that are priced comparable to relevant recent sales of non-distressed properties. The result is loss of competition. With no competition buyers negotiate in a vacuum and owners who have to sell have no options but to take what is offered. The cost of foreclosures is the burden of people who happen to live in areas of rising foreclosures.
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