This is a question hear often. It doesn't matter where I am; the gym, work, my children's school, sporting events, grocery shopping. The question may not always be directed to me, but people are curious and they want to know. Is buying a short sale, foreclosure or bank owned property a good idea?
Even with so much talk about short sales, foreclosures and bank owned properties, there appears to be some confusion on what the difference between each of these are. So before I answer this burning question, I feel a brief definition of each would be helpful.
What is a Short Sale?
A short sale is when a bank or mortgage lender agrees to discount all loan balances due to an economic hardship on the part of the mortgagor/home owner. The home owner sells the home for less than the outstanding balance of the loan and turns over the proceeds of the sale to the lender in full satisfaction of the debt.
The lender has the right to approve or disapprove the sale. Extenuating circumstances influence whether or not the bank will discount a loan balance. These circumstances are usually related to the current real estate market and the individual borrowers financial situation.
A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.
What is a foreclosure?
A foreclosure is the legal proceeding in which the lender obtains a court order to take over a property where the home owner is behind on their mortgage payments. The foreclosure process begins when a borrower defaults on loan payments and the lender files a public default notices, called a Notice of Default.
The home owner will have to vacate his home and the home will become a bank owned property.
What is a Bank Owned or REO property?
REO (Real Estate Owned) properties, commonly referred to as bank foreclosures, are homes that go back to the mortgage company. After borrowers default on their home mortgage loans, lenders must buy back the properties at auctions to recover their losses.
The bank now owns the home and the mortgage loan no longer exists. The bank will handle evictions if necessary and may assign the home to a licensed real estate agent to list and sell.
So, is it a good idea to buy a short sale, foreclosure or bank owned property?
The answer depends on you! There are several questions you need to ask yourself prior to purchasing a short sale, forclosure or bank owned property.
Have you ever bought a home before? Have you ever sold a home before? Do you understand the process of buying and selling a home? If you have, toss away all this valuable inforamtion on everything you have ever learned from this process and start thinking differently.
The rules are different and you need to do some homework before you purchase one of these properties.
Buyers pursue these type of sales to get a good deal. But before you jump on the great prices you find, hire a real estate agent to help you sort through the homes to find out which ones are worth pursuing and which ones are not.
Yes, some are better then others. Have your real estate agent make a list of short sales, foreclosures and bank owned homes in the area you are interested in first, second, and third. Review all the information you are given prior to making any offers.
Have your real estate agent make appointments to show you the properties. Some properties will not be available for showings. All of these homes are sold as is. This means no repairs will be done on the property if they require any. Missing fixtures, appliances or flooring will not be replaced. In most circumstances, the SRPD (Sellers Real Property Disclosure) does not apply. In Nevada, the SRPD is a form where the seller must disclose any and all known conditions of the property which affect the value of the property. Essentially, without the SRPD, you are buying at your own risk.
Once you find a property you are interested in, have your real estate agent contact the seller and find out if any offers have been made on house and find out as much as possible about the property prior to making an offer. This will help save time.
Once you make an offer on a home, be prepared to wait. The mortgage companies are overloaded right now with short sales and it can take 90 days or longer for approval or acceptance on any offers you make. Your real estate agent will have contact with the lenders negotiator to help make this process smoother, but will have no control amount of time it will take to get the deal closed.
These are just a few things you need to be aware of when considering purchasing one of these homes. If you feel comfortable with this information and are willing to hire a experienced real estate agent who can help with this process, buying a short sale, foreclosure or bank owned property is a great idea. You should be able to find great deals on these homes!
Remember ~ It will take longer to close escrow when you buy short sale, forclosue and bank owned property, but it will defiantely be worth the wait!
If you are interested in a list of short sales, foreclosures or bank owned properties in Northern Nevada, please feel free to contact me and I will be happy to assist you.
Authored by Terrie Leighton. September 2008. Terrie is a real estate agent with Ferrari-Lund Real Estate. All information in this post is believed to be accurate but is not guaranteed.
Your Home. My Priority. Since 2003
Certified Distressed Property Expert (CDPE)
Certified Default Resolution Specialist (CDRS)
Short Sales & Foreclosure Resource ~ Certified (SFR)
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Certifed Negotiation Expert (CNE)
Cell ~ 775.846.5424
Email ~ Terrie@terrieleighton.com