FORECLOSURE AND SHORT SALES
Foreclosures are an excellent opportunity for buyers to grab a great deal. However, if you’re not careful, you could end up with money invested and time lost on a contract that no one can agree on. While foreclosures, REO’s and short sale properties all have distinctive similiarities, they are also quite different.
What is a Foreclosure Property?
When an owner has stopped making mortgage payments, the lender will give notice that unless the payments are brought up to date, it will sell the property to the highest bidder. There may be other reasons for default, but this is the most common. Typically, notices of default occur when a borrower is at least 60 days in arrears. If the loan cannot be brought up to date and no other arrangements are made, the lender will take the property and attempt to auction the property at a public sale at the County or City courthouse..
What is a Short Sale Property?
A short sale occurs when a home owner is headed towards or in foreclosure but before the property goes to public auction. Under a short sale, a lender must agree to accept less than the amount that is owed on the property. This arrangement must be made ahead of time and requires significant documentation by the seller verifying his inability to pay.
Even if the lender agrees to a Short Sale, the lender may change its mind at any time and disagree with the seller’s terms or the purchaser and seller’s agreement and proceed with the foreclosure and public auction. Also, remember, EACH lender must participate in the process of discharging the debt. So if the purchaser has multiple home equity loans, this process could be futile. A pre-settlement title search would be prudent to assure the seller is representing his debt accurately.
What are REOs – Real Estate Owned?
When Banks end up owning the property because they did not sell at public auction, they become the property of the lender. Often times lenders will sell repossessed homes for less than the past loan balance. REO homes are often considered the best way to buy a distressed property because there is only one party to deal with – The BANK! It’s just the purchaser, the purchaser’s agent, the bank and the bank’s agent who are negotiating the transaction. There is also more incentive to unload the property as Banks are in the business of selling mortgages….not carrying them!
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