Foreclosures - Real Estate Owned, Auctions, and Short Sales
Due to the struggling economy and real estate market, there are several homes on the market that are experiencing some form of ‘distress’. With reduced income or job loss, distressed sellers may lose the ability to pay their mortgage. This means foreclosures may be inevitable. Foreclosure is the process that financial institutions use to sell off (auction) mortgaged property to recover debt. Normally, a foreclosure notice is issued after three of four gaps in the repayment program. The foreclosure procedure by the bank (lender) begins after getting a go-ahead from the borrower. The agreement between the lender and borrower is called a ‘deed of trust’.
There are many unclear and confusing terms today regarding ‘distressed properties’. These include terms used in Real Estate such as Real Estate Owned, Auction and Short Sale. These terms are used by many Realtors more for marketing purposes because people associate those particular words with good value. However, this is not always the case. Home evaluation should be done on a case by case basis.
Real Estate Owned Properties
“A depressed housing market can be bad news for homeowners but good news for homebuyers.” – Tina Brown
When a property does not sell at an auction, all liens are removed from the foreclosure, and the bank now owns the property. These properties are referred to as Real Estate Owned (REO). A home that has been ‘foreclosed’ and is then listed by real estate agents. This gives the property broad exposure to the market, maximizing the possibility of a sale. REO property are usually sold on an ‘As Is’ basis. Generally, lenders are very eager to sell these properties because REO’s tie up their capital reserves and hinder their ability to lend money. In addition, the management of these properties can be very costly.
These properties are usually the most accessible to new home buyers interested in purchasing a foreclosure. See http://www.home-fish.com for a free map of foreclosed properties.
Short Sales
”… as it as it stands today, short sales remain an extremely time-consuming and frustrating process.” – Mark Roth
A short sale occurs when the owners sell their property for an amount less than they actually owe the lender. This happens when the value of a home has depreciated so much that a sale is not able to pay off the mortgage. The short sale is conducted with the consent of the loss mitigation department of the bank. However, the lender reserves the right to approve or disapprove a proposed agreement. Short sales, in most cases, are the first step to avoid foreclosure. The cost of foreclosing on a property could be more than what the bank loses by taking a short sale. By accepting a short sale, the lender saves considerably on expenses associated with the foreclosure process.
Auctions
“Don’t even bother attending public foreclosure auctions unless you’re a pro.” – Real Estate Weblog
Though auctions, short sales and REO’s are all ‘distress sales’, they are distinctly different from each other. In the case of a short sale, the home owner’s name is still on the title of the property and they are the rightful owners who are trying to sell the property. In a foreclosure (auction), the lender takes the possession of the property and the homeowner is no longer involved in the sale. Unlike REO’s, foreclosed properties are not sold by real estate agents. Properties which are foreclosed are auctioned at a Trustee Sale at the Court House in the County where the property is located. A foreclosed property is normally expected to be paid for in full at the time of the auction.
Article by Charles Mburugu
