Short Sale, REO, Pre-foreclosures, and Foreclosures
What are they and how can I benefit from them?
With all the popularity in the local media about the rise of short sales and foreclosures, you will most undoubtedly want as much helpful information on short sales, REO and foreclosure that you can get. Now is the time to buy with the market seeing the signs of a rebound, while sales taxes and interest rates are still at all time lows. So what are short sales and what is foreclosure, and how can I purchase a property listed as such so that it benefits me?
So what is the difference between foreclosure, pre-foreclosure, short sales, and REO?
REO, short sales, and foreclosures are all alike in that they all fall under the “distressed property” classification and the home had something or some event that prevented the homeowner from being able to make the payments for the home. All 3 negatively affect the credit rating of the property owner as well. The difference between the types of sales is determined by what process is used in essentially reprocessing the home.
One of the first steps in preventing foreclosure is attempting a short sale. With short sales, homes listed have generally fallen behind on monthly payments by a month or two, and are considered to be in default. While not generally considered in foreclosure, if the homeowner is unable to keep up with the payments and decides to sell the property, the owner can ask the lending institution to approve selling the property for a loss, or short, of the current loan. When a bank or lending institution is presented with an offer at a short sale, they look at the amount offered and decide whether or not to accept the offer. Banks take into account how much is owed, how much is offered, and if a short sale would be beneficial to the bank. Foreclosures usually take very long to complete, and banks generally do not see as much return on their investments. If a bank decides that the loss on the loan would be still greater than the losses occurred if the house was to go into foreclosure, then generally banks or lending institutions will agree to a short sale. Each case is reviewed individually, and other influencing factors might determine what your local bank or lending institution will offer. Other requirements and obligations can affect the outcome of short sales, as each short sale is unique.
Helpful Advice for Short Sales
Short Sales are each unique in each case, and the outcome of a short sale is never guaranteed.
Short sales do generally take less time than foreclosures, but are not instant. If moving in today is more what you’re looking for, short sales many not be right for you.
Short sales don’t necessary mean that you will save tons of money. The complex nature of short sales not only requires time, but if you start with a home that is priced below fair market value, by the time it closes, it could cost well above that price. With short sales, while they are not the quickest way to purchase, time is still money. The quicker the process moves, the more money you will potentially save. To expedite the process, you should use an agent that has extensive knowledge in short sales, and is familiar with the legal proceedings and nature of this type of purchase.
Foreclosure is defined as the legal process taken by the lender in order to retake possession of property. Homes are placed into foreclosure after the homeowner is no longer making any payments to the lender. Foreclosure is a specific legal process, and has a timeline set by regulations form the US government. Foreclosures differ from short sales because where a short sale could still list the homeowner on the title, foreclosures are entirely owned by the lender, and they control the sale. The homeowner no longer is a part of the deal.
Helpful Advice for Foreclosures
Remember that you are purchasing the property from a bank or lending institution, not a person.
Homes listed by real estate agents are in pre-foreclosure stages. Once a home is in foreclosure, the home is generally auctioned off, generally at Trustee Sales at local courthouses.
If purchasing a foreclosure, you must pay the entire amount in full at the conclusion of the auction.
If you are interested n a Trustee Sale, it is best to leave the purchasing to an experienced investor. When you buy a property at auction at the courthouse, you still face the same risks associated with purchasing one off the MLS board. Experienced investors, such as realtors or title professionals, investigate problems with the home during normal sales transactions on the property. The property could have title issues, IRS liens, structural problems, or have superior loan payoffs that could potentially become major issues after being purchased.
While foreclosures could net you a home priced well below other local home prices, there may be serious risks or major expenses needed after obtaining the title to the home.
So what is a pre-foreclosure and how is it different?
Pre-foreclosure properties are properties that are being sold PRIOR to the lending institution issuing a Notice of Default (NOD). When a home is placed into pre-foreclosure, homeowners have expressed severe financial trouble, and either has failed to make too many payments, or is unable to catch up on their payments. When a home goes into pre-foreclosure, homeowners can attempt to sell the home to prevent it from fully being placed into the foreclosure status and affecting the homeowners credit. Properties listed as being in pre-foreclosure either state that the NOD has not been served yet or the term is being used to help garner attention for a listing. In this sense, “pre-foreclosure” is used as a marketing ploy to create interest in a property by offering potential clients the possibility of purchasing property below market value. “Below market value” is a subjective term, though, as appraisals of the properties actual value may not have been preformed. It is best to consult with a real estate agent for more information on a home that is listed as pre-foreclosed.
So what are REO properties?
Real Estate Owned properties, or REO properties, are usually properties that do not sell at auction when sent to Trustee Sales. REO properties are owned by the bank or lending institution. Just because the property didn’t sell at the auction doesn’t mean that anything is wrong with the property, it could just be that the home wouldn’t make a good investment for those in attendance at the auction. Banks and lending institutions do not see REO’s as being bad property, and consider the return on the investment weighing in potential rental income, and take into account maintenance costs and other fees. Once a home is listed as an REO, the property can be once again listed on realtors MLS boards. Generally, homes in REO sell quickly, as they are generally priced to move. A lot of the time, in order to help expedite the sale of the home, lenders will remove any liens on titles and fix any other problems that could prevent a potential buyer from purchasing the property (such as title issues). One of the biggest advantages of REO’s is that when you find a motivated bank and lender with an REO, they are motivated to sell. REO’s will eat away at a bank or lending institutions capital reserves and prevents them from lending money.
What if I don’t want to purchase a “Distressed Property” but still get a great deal?
While distressed properties can be lengthy and very involved from not only a legal standpoint, many homes can be purchased that are not listed as a distressed property. These homes are owned by owners with plenty of equity, are motivated to sale, and are offering their home at a great price. To help find these kinds of deals, your best bet is to go through a real estate consultant. Distressed properties, while they have the potential to save the buyer thousands of dollars, may not always be the best bet for buying that perfect property.
For More Information or to Request a List of Recent Short Sales or Distressed Properties, Contact:
Phillip G. Rubin, SFR
873 Orleans Road Suite 102
Charleston, SC 29407
Office number: 843-556-5800
Cell: 843-991 0982