Real Estate FAQ's
Recap on the Current Real Estate Market
Short Sales, Foreclosures & Bank Owned Properties
TERMINOLOGY
Short Sale; When the payoff amount of the loan exceeds the market value of the property. The owners may qualify to sell for less than what is owed. Permission must be obtained from the lender in writing. Successful COE is uncertain
Foreclosure; Action taken by the lender to repossess the property, ending the owner's rights to it. The process between the recorded ‘Notice of Default' for non-payment on the loan, and the lender's repossession is approximately 4 to 6 months.
REO "Real Estate Owned' or Bank Owned; The property and the lender have gone through the state governed foreclosure process. ‘The Bank' now owns the property, has title and the ability to sell. Usually priced under market values.
Short Sale:
Home owners are "up side down". Their existing loan balance and other liens exceed the price they can get for their property. The property proceeds ‘fall short' of what the owner still owes on the mortgage. Some lenders will agree to accept the proceeds of a short sale and forgive the rest of the mortgage debt when the owner can't make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes on the property. Often with credit and tax consequences.
In a ‘short sale' the Buyer's offer is contingent upon the seller's ability to obtain written approval from the lender and any other lien holders. So the closing could take much longer than normal. It could be 30 days... it could be 5 months or longer - and it also might never happen.
Foreclosure:
Foreclosure is the legal process used to enforce the creditor's rights to collect the past-due monies for a debt secured by Real Estate; the owner's right to a property is terminated, usually due to default. Typically this involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt.
The property owner has a default period to either reinstate the loan or sell the property. Some owners choose to sell during this period. If the default time has elapsed without any action by the owners, the lender now schedules the property for auction. The owners are in control of the property up until the auction. If the owner doesn't reinstate or sell the property by the sale date, then the foreclosure auction will take place. With Foreclosure properties, all of the liens, HOAs and taxes transfer with it.
When buying a property at auction It's rarely possible to inspect the property. To be safe, have a title search performed first. Large cash outlays are preferred and detour most buyers. Certified checks, all cash sales, or 10% of the purchase amount is required with the balance due in weeks, days or even hours. The successful bidder will receive NO WARRANTY OF ANY KIND for the property. And no assurance that there aren't more liens or loans on the property. There are no disclosures of the condition of the building, the systems and maintenance or the neighborhood.
REO "Real Estate Owned" (or Bank Owned):
The property is owned by a lender, typically a bank, often after an unsuccessful sale at a foreclosure auction. When a property is sold as ‘Bank Owned' it is sold 'as is' but a buyer's offer is still contingent upon inspections and appraisal. All liens are cleared. This means a REO property will have clear title, which saves a lot of time, expense and worries compared to trying to purchase a foreclosure. The lender will often make repairs and improve the property to acceptable standards, or allow a discount or credit to the buyer to accomplish the repairs REO's are the least risky way to buy a foreclosure.
The lender does not want to keep the property ‘on the books', and is therefore usually motivated to move the property quickly. Average savings can range from 15% to 25% off market value, although discounts of up to 35% or more are possible if you have a good Realtor to guide you through the transaction.
Each of the three ‘foreclosure opportunities' are different types of property ownership. They each have different types of contingencies for the buyer and distinctively present both rewards and certain risks. One thing is certain; there's a lot of ‘great buys' now. Be sure you have a professional, knowledgeable Realtor who can navigate the current market to best represent you.
