Foreclosures has been the hottest topic in the real estate industry for the past couple of years. While it’s true that foreclosures can represent an excellent value for buyers, they are not necessarily for everyone and should be fully understood before venturing in.
Types of Distressed Properties
The term “foreclosures” is often used to generally describe distressed properties for sale, but in fact there are three primary types of distressed properties :
- Short Sales – A short sale (or pre-foreclosure) is a property being sold by its owner for less than the amount of the mortgage on the property. These properties are typically sold right on MLS. A short sale is frequently a tactic deployed to avoid an inevitable foreclosure. Once an offer has been accepted, the bank holding the mortgage needs to approve the short sale. This can take an extended period of time and may or may not be approved in the long run. Because of this uncertainty, short sales are most definitely not for the “faint of heart”.
- Foreclosures – A foreclosure is a property forced into being sold at auction, most commonly by the bank holding the mortgage on the property. Foreclosures and their associated auctions are publicized in local newspapers, along with the terms of the sale. Typically, interested buyers must be prepared to make a minimum cash deposit on the day of the auction and are unable to view the inside of the property prior to the auction or even the closing. The closing usually must take place within 30 days of the auction and without allowance for the inspections typically performed on a property. Furthermore, auctions are frequently cancelled within minutes of starting because the owner has either settled with the bank or has declared bankruptcy. When an auction DOES take place, the bank itself is frequently the “winning bidder”, because the outstanding mortgage balance is oftentimes higher than any other bidder is willing to pay for it.
- Bank-Owned – If the above-mentioned scenario takes place, and the bank does, in fact, “win” a property at auction, that property becomes bank-owned, also called “real estated owned” or REO. REOs are typically sold by Realtors on MLS, just like most other properties. They are frequently listed at attractive prices, since banks are looking to unload them. Of the three distressed property types, REOs tend to be the “safer choice” since you don’t have to buy them sight-unseen like foreclosures, and they’re being sold by the banks themselves, unlike the short sales. However, REOs can still be very complicated. Frequently there are multiple lenders/investors involved, all of whom need to approve the sale. They are seldom as straightforward as buying a non-distressed property.
In summary, if you’re considering buying a distressed property, know what you’re getting into and brace yourself for a potentially long and frustrating process. If you’re aware and prepared, your bargain-hunting could very well pay off. Contact Marie for more information and assistance.