Short Sales

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Foreclosures, Short Sales and REO's

What is a Foreclosure Property?

A foreclosure property is a home when a notice of default has been filed in the public records.

• It means the owner has stopped making mortgage payments and the lender has given notice that unless the payments are brought up to date, it will sell the property to the highest bidder.

If the home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale.

Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to a point, the time which varies from state to state.

Real estate investors and home buyers see profit in buying foreclosures because they can often buy the property for the amount owed, picking up the home owner's equity for free and get it for less than market value.

When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”. 

What is a Short Sale Property?

A short sale occurs when a home owner is 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.

Unlike a foreclosure, investors typically buy the home for even less because investors are not paying off the existing loan nor making up the back payments. Investors are striking a deal with the existing lender to take less than what the lender has coming to avoid dealing with a foreclosure.

Lenders are not going to make a deal with an investor unless the seller has fallen behind on the seller's obligation to make timely mortgage payments. For a buyer who wants to occupy the home, buying a short sale makes financial sense.

What are REOs - Real Estate Owned?

Buying an REO is similar to buying a short sale except the property is already owned by the lender. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. .A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing

REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor, the investor's agent, the bank and the bank's agent who are negotiating the transaction. Some REOs can be purchased directly from the lender. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Buying Foreclosures & Short Sale Homes Not all foreclosures and short sales are profitable. To pull a home out of foreclosure buyers need to:

1. Make up back payments to the lender
2. Pay all imposed fees
3. Either pay off the loan or make arrangements to sell the property.
4. Few lenders will let a buyer assume an existing obligation.

• Buying Distressed Homes involves three ways to purchase: from the seller in foreclosure, negotiating a short sale or buying from the lender after a public auction.
• Buying Short Sales details why the process is complicated and can take much longer to close than an ordinary transaction. Not all short sales are profitable, and this article explains why.
• Buying Foreclosures before the home goes to a public auction involves negotiating directly with the seller. Buyers also have the option of bidding on a foreclosure at the public auction, but read the procedures first.
• Drawbacks to Foreclosures talks about the repercussions and inherent problems that are often present when buying a foreclosure. Buyers who bid at public auctions will benefit from getting as much information as possible beforehand.
• Defaults Hit Home Values. Nearby homes will feel the effect, which could pull the market value of a newly purchased short sale or foreclosure even lower. This article goes into detail about how appraisers determine the value in neighborhoods with distressed home sales.

Fixing Up Foreclosures & Short Sale Homes

• Repairs Before Resale can boost bottom-line profit. But not all repairs or improvements return 100% of an investment. Read why.
• Top Do It Yourself Mistakes . This article covers 10 common errors home owners make when trying to flip a house. Don't think about buying a foreclosure until you read this.
• Fix-Up and Sell is a five-part series with links at the end of each article to the next. It's a first-hand description involving simple to complex remodeling projects that were completed on five flipper homes.

Written by  www.About.com    Abridged by Lois Szydlowski

While different, they are also similar because without knowledge about handling foreclosures, short sales and REOs, you could find yourself in dangerous territory. For example, while all short sales are foreclosures, not all foreclosures are short sales. To further complicate matters, REOs are not short sales either, but some intended short sales can end up as an REO.