A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed.

Often, a lender accepts a discounted payoff on a mortgage to avoid foreclosure proceedings on the property.

Example:

A homeowner/seller, who may be facing foreclosure, has an existing first mortgage of $300,000. The current market value for comparable homes has decreased. Similar homes are SELLING FOR LESS than the homeowner owes.  A Buyer presents an offer for $270,000.

The Lender accepts the offer as full payment for the loan. This is a short sale. The Lender has given a discount on the homeowner's loan.  Although the Lender has taken a loss, it is not as severe as compared to the costs involved in the foreclosure process.

The lender is very motivated to get as much as they can for the property. When considering the value of a property that is offered as a short sale, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs.   

Ready To Make An Offer?
As with making any offer on real estate, you will want to find out as much as you can about the condition of the property and comparable sales. Your realtor can guide you with making your offer with the appropriate contingencies and documentation. It is not unusual for the lender and the buyer to go back and forth with several counter offers over a period of many days to even weeks.

...Looking out for you!
Kim Beach
Realtor

Life's A Beach! 

There is a lot of interest in buying bank owned properties and foreclosure sales these days. Often, buyers are lead to believe that they can make a lot of money with little effort when buying REO or foreclosure sales. The fact is that it takes knowledge and effort to make money on these purchases.

What Is An REO?
REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as a property up for foreclosure auction.  When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO’s may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is REO A Bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a REO if your intent is to make money off of it.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Ready To Make An Offer?
Most banks have a designated REO department, and will use a listing agent to market the property in the local MLS. REO properties are usually sold “as is”. As with making any offer on real estate, you will want to find out as much as you can about the condition of the property and comparable sales.  Your realtor can guide you with making your offer with the appropriate contingencies and documentation. You will be dealing with a process that probably involves multiple people in the REO department. It is not unusual for the bank and the buyer to go back and forth with several counter offers over a period of many days to even weeks.