Your Colorado Springs Life & Home

Lori Thompson Explains Short Sales Vs Foreclosures

• Lori Thompson • Episode 10

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How Do Short Sales And Foreclosures Work?

Deals on distressed homes are real—but only if you know how to navigate the maze. We break down short sales and foreclosures in plain language, showing where timelines stretch, where lenders draw hard lines, and where smart preparation turns a risky bet into a confident purchase.

First, we clarify the fundamental difference: a short sale is a home on the path to foreclosure that still needs lender approval to accept less than the mortgage balance, while a foreclosure is already bank-owned. From there, we map realistic timelines, why lowball offers often fail, and how lender valuations shape negotiation power. You’ll hear how winterization affects inspections, why buyers might pay to unwinterize and rewinterize, and how FHA and VA standards can derail a deal if key safety items aren’t addressed.

Then we get practical. We walk through must-do inspections—full home, roof assessment, sewer scope, and more—and explain why spending upfront saves thousands later. We share red flags for REO listings, how to manage utility activation, and when an “as is” stance is negotiable. For sellers in hardship, we compare the credit impact of a well-executed short sale to the long tail of a foreclosure, including potential deficiency judgments and the possibility of a 1099 for forgiven debt. Throughout, we highlight how an experienced realtor streamlines paperwork, sets expectations, and navigates bank processes that can overwhelm even seasoned buyers and sellers.

If you’re weighing patience against price, this conversation equips you to choose with eyes open. Subscribe for more real-world guidance on Colorado Springs real estate, share this episode with someone considering a distressed purchase, and leave a review with your top question—we might feature it next.

To learn more about RE/MAX Properties Inc. visit:
https://www.LoriThompson.REMAX.com
RE/MAX Properties Inc.
Colorado Springs
719-332-1807

SPEAKER_01:

Welcome to your Colorado Springs life at home, where real estate meets real time and maybe a little too much coffee. Hosted by Remax Properties licensed realtor broker and top producer Lori Thompson, a local legend who's been helping military families and civilians buy and sell homes for over 40 years. Whether you're PCSing, upsizing, downsizing, or just a dream, Lori's got you covered. Why? Because she's your lifetime realtor. And she actually answers her phone. Imagine that.

SPEAKER_02:

Welcome back, everyone. Frederick here, your co-host and producer, back in the studio with Remax Properties licensed realtor and broker, Lori Thompson. Lori, how's it going?

SPEAKER_00:

Not too bad. How are you doing?

SPEAKER_02:

Good, good. Thanks, thanks. So, Lori, it's always great to be here with you. So let's kick things off, you know, with how you do short sales and foreclosures and how they work. Uh, the first question for you is what is the main difference between a short sale and a foreclosure?

SPEAKER_00:

You know, that's a really good question because a short sale, that's a house that's headed towards foreclosure. They may not have enough equity to do the sale, pay the fees, or anything else that's related to a sell a sale of a home. So a short sale means that they have to negotiate with the holder of their mortgage to accept a short path. A foreclosure is one that's already been through the foreclosure property, and title is now held usually in the bank's name.

SPEAKER_02:

Okay. Okay, thanks for uh clearing that up for us. So then how does the timeline for each process typically unfold?

SPEAKER_00:

Um, well, just so you know, a short sale can take between two months and a year. And like I said, the year is the outer edge, and two months is actually kind of a speedy edge. I think I've had one or two that have been done in four to six weeks. But typically what happens up front is the owner of the property for a short sale has to sit a pack submit a packet about that thick or so showing why they need a short sale. It could be a divorce, a job loss. There's some kind of hardship that they need to demonstrate to the lender, this is why I need your help. Then when the buyer submits a offer, and keep in mind, just because it's a short sale doesn't mean they're going to take a super low price on it. I mean, they've already had it appraised independently, either by a licensed appraiser or by another real estate broker. And so it just seems to take forever. It does. But if someone has alternate living arrangements and they have the time, it can be a wonderful way to buy a home. Now, on a foreclosure, it's a little bit different. It really depends on the condition of the property and the particular party you're dealing with on behalf of the bank. Once again, it doesn't mean they'll just take a ridiculous offer. If you're doing FHA or VA financing, it still has to meet all of those minimums. And some of the extra things that can kick in, especially with our climate, our four seasons, is during the wintertime they winterize the properties. So if you want to have your inspection done, typically the buyer has to pay to have it unwinterized and re-winterized after the inspection. Sometimes they have to put utilities in their name to do the inspections as well. And so it can be a little bit more complicated, but once again, there's good opportunities there if you're patient and if you do your due diligence, you can get a decent deal on it both a foreclosure and on a short sale. Now keep in mind that if there's someone who's very motivated to sell that is not either a short sale or a foreclosure, you may end up getting a good deal on a house that has not been winterized and that you don't have to wait an extended time for. So a lot of it just depends on how much time do you have, how much patience do you have, and what you're willing to go through just to possibly get a better deal.

SPEAKER_02:

Nice. That was a very, very thorough answer. Thank you so much for that. Um, so what should buyers be aware of when considering these types of properties?

SPEAKER_00:

You know, I always have to think of what's the worst thing that can happen, what's the best thing that can happen. Just to be aware of the timelines and that it might take a longer period of time. If it is a bank-owned foreclosure, sometimes they will not do repairs, which personally I think is a little foolish because it's like tripping over a dollar to get it a nickel, where the banks can't always see the logic of doing certain things that will make the house worth more. But it is what it is. Sometimes we have success with getting them to approve different repairs, and sometimes as is, where is, we're not fixing anything, we don't care what kind of financing you're using. So those are just things that each one is a little different, and so I always try to prepare people for the worst of what can happen, just so they don't go into it surprised when or if that does happen. And if it doesn't happen, hey, so much the better.

SPEAKER_02:

True, true. Yeah, I agree. Being prepared is always better than not being prepared. So speaking on speaking of you mentioned some of these homes are bank owned and everything. Are there are there any financing challenges that are unique to short sales or foreclosures?

SPEAKER_00:

On foreclosures, just to be prepared, that you may have to take on the additional expense of having a plumber unwinterize it and rewinterize it. I've run into just a few where you can only do the air pressure test for the plumbing, and that's where they look for leaks with air pressure, and a lender may or may not accept that air pressure test, making sure we're really having trouble with insurance right now. So it is very important to check the roof. And so, like any property a person is contemplating purchasing, the best thing you can do is pay for full inspections. I cannot see through the ground and tell you that your sewer line is okay. I cannot, I will not get up on the roof to check out the quality of the roof. And matter of fact, nowadays I don't even like to go into crawl spaces. So, you know, to have a good quality inspector, check that home top to bottom. And I always tell people, I would rather that you had a home inspection done and you did not buy that house than you skipped that inspection part and ended up with huge repair bills later on. So yeah, that's just what to prepare for is thorough inspections up front.

SPEAKER_02:

Yeah, sounds sounds like great advice there. And so how do transactions like these impact sellers and their credit?

SPEAKER_00:

Well, if they're doing, if I'm representing someone on a short sale, I typically will work with a company like I work with a company called Short Sale Solutions. And the reason why is there's so much paperwork and just mind-boggling bureaucracy to a short sale that uh I didn't want to go back to drinking. So I thought it would be better if I partnered with a good company like Short Sale Solutions. And the reason why is sometimes I'd be driving with other clients and I'd get a random call. Hello, this is Bethany from Wells Fargo. Before I can proceed, please give me your client's social security number. And here I am with a car full of people. I cannot take those kinds of calls in the middle of doing my other business. And also to have the patience level of the partners I use for short sales. So doing a short sale is better for your credit than letting the home go to foreclosure. How it can impact them later, you know, there's still a chance that even if you've done the short sale, that they might try to recapture some of the money they waived. I've also heard if they don't go after the money they issue you a$1099. So let's say they forgive$40,000 of the mortgage balance in order to accomplish the short sale, you will get a$1099 for$40,000 like it was earned income, and you'll owe taxes on that. So the taxes are still a lot cheaper than$40,000. So there are things to be aware of when you go into that process, but it's so much better than having a foreclosure on your credit report. And a foreclosure on your credit report is a foreclosure on your credit report, and it will take you seven, eight years to recapture what you've lost as far as your credit rating, which will impact your car insurance, it'll impact your ability to get other credit, and they could even pursue a deficiency judgment against you with a foreclosure. It's really up to the lender, so it's kind of tough.

SPEAKER_02:

Yeah, 78 years sounds like quite a while. So thanks for that. That was really great info. Final question for you is what role does a realtor play in guiding clients through these situations?

SPEAKER_00:

Uh you know, you have to have an experienced agent who understands the short sale process. You really do. And I would have to say again, an experienced agent who would know some of the pitfalls to buying a foreclosed home. And um, if the agent, the broker may not have that much experience, hopefully they can partner with someone who does have that experience. And so it's really important to have someone who knows what they're doing just to keep you on track.

SPEAKER_02:

Gotcha, gotcha. Well, thank you so much for breaking down such a complex topic with clarity. Thank you for your time. Really appreciate it, and we'll see you next time on your Colorado Springs Life at Home.

SPEAKER_01:

That's a wrap for this episode of Your Colorado Springs Life at Home. Got questions? Need advice? Just want to talk about interest rates and granite countertops? Call or text Lori at 719-332-1807. Yes, she'll really respond. Or visit Laurie Thompson.remax.com to get started with your lifetime realtor. Because when it comes to Colorado real estate, Laurie doesn't just know the market, she is the market.