We are thrilled to offer our clients a new feature on our website--the ability to search for foreclosure homes! Foreclosure is actually a PROCESS, defined simply as "the legal proceedings initiated by a creditor to repossess the collateral for loan that is in default." This process can take anywhere from 4 to 24 months. When you search by the term "Foreclosures", you will actually find SHORT SALES, APPROVED SHORT SALES, and BANK-OWNED (also called REO) PROPERTIES. The search will not differentiate between these--as your Realtors, we can help you set up a custom search, and determine which of these opportunities make sense for you. There are some important differences you'll want to understand before you enter the market. Let's take a quick look at:
- SHORT SALES (Pre-foreclosure)
- APPROVED SHORT SALES
- BANK-OWNED, also called REO (real estate owned) PROPERTIES
SHORT SALE: A homeowner behind in payments, whose mortgage balance is greater than his home's market value can attempt a SHORT SALE, where the bank accepts a sale price less than the mortgage balance on the home. and release the owner from the obligation without proceeding to foreclosure, or forcing him to file bankruptcy. The homeowner puts the home on the market, presents an offer to the bank, and the bank decides whether or not to accept the offer. When the bank receives an offer, it orders a BPO, or Broker Price Opinion, and/or an appraisal, and if the offer is within 10% or so of market value, it may (but not always) decide to accept the offer. A short sale will have a negative impact on an owner's credit rating, but not as harmful as foreclosure or bankruptcy. In addition, in January 2008, a law was passed that no longer treats the amount of debt forgiven as taxable income for a principal residence. SHORT SALE homes are also known as PRE-FORECLOSURE homes, and list prices are typically NOT set, or approved in advance, by the banks. The bank will still have to approve any offer, and this is typically a lengthy process (think 45-60 days, though we have seen it take 8-12 weeks). If the home you're interested in is a short sale, patience is mandatory. If you are under a time constraint, you may not be able to consider short sale property. You may need to look at APPROVED SHORT SALES, or BANK-OWNED PROPERTIES, or regular listings of non-distressed but motivated sellers.
APPROVED SHORT SALES: For a variety of reasons, the bank has agreed to a sales price that it will take for the house. In most instances the bank will want to close within 30 days. There are certain techniques we have used to help our buyers actually secure lower prices than the approved number. Some property may have the words "APPROVED SHORT SALE" in the description, but currently the searches that you have access to as a consumer do not sort them as such. As your Realtors, we can help you locate these homes.
BANK-OWNED/REO PROPERTIES: in which the foreclosure has been completed, the bank owns the home, and can respond immediately to an offer. Most banks have strict requirements for offers, and be prepared to compete with other buyers for the best properties/best values. For an "inside the industry" look at the bank-owned market, click here, to go to our discussion on buying Bank-owned properties.
