Short Sales, REOs and Foreclosures
In the search for a good real estate deal, some buyers will consider buying homes that are short sales, REOs (Real Estate Owned) properties or foreclosures. These can be financially beneficial but are very different in nature and anyone considering one of these transactions should understand the differences.
Occasionally homeowners will find themselves with financial difficulties and the inability to pay the mortgage payments and therefore they may need to sell the house. When real estate values decline, homeowners can be in a situation in which there is less equity in their home than the amount that they can sell the property for. There are currently several million homes in the US that are underwater or have less equity than what is owed. Although it depends on the lender and the state where the property is located, typically after a homeowner fails to pay their mortgage for ninety days, the servicer of the loan will issue a Notice of Default. If the homeowner is not able to bring the loan current, then the foreclosure process begins. There are options for the homeowner at this point including loan modifications, so it is important to have a dialogue with the lender.
If a loan modification is not possible and certain hardships exist, a short sale may be an option. A short sale is an approved sale by the lender and lien holders to sell the property for less than what is currently owed on their mortgage. As the purchaser of a short sale, there are several things you should consider. The first is timing. Often a short sale can take considerably longer than a traditional sale. There is no guarantee that the foreclosure process will be postponed while the short sale is happening. Therefore, depending on the timing, it is possible the property is foreclosed upon before the sale is complete.
REOs, also known as bank-owned properties, are the result of the unsuccessful sale of a property at a sherriff’s sale or auction and thus the lien holder or investor takes ownership of the property. Typically, the bank will list the property for sale with a broker in the local MLS. These properties can be a good deal. In many ways bank-owned properties are similar to traditional sales although in most cases the bank will not make any changes but sell the property as-is. The bank will allow for a home inspection which is highly recommended to determine what if any repairs are needed to make the property habitable.
Finally, properties may be purchased at a foreclosure or sheriff’s sale. This is not for the inexperienced buyer. Prospective buyers do not have an opportunity to enter or inspect the home prior to buying the house. Depending on the municipality, typically the buyer is required to pay 20% of the auction price in cash or by certified bank check as a deposit at the auction. The typical buyer at a sheriff’s sale is an experienced contractor or someone with intimate knowledge of the property. One should be very careful choosing this option as the condition of the house could be in total disrepair.
For more information, or if you need a referral for a knowledgeable Realtor© in your area, contact:
Coldwell Banker Residential Brokerage
211 South Street
Morristown, NJ 07960
(O) 973-267-8990 x153