Buying a short sale or foreclosure property can be confusing because each situation is unique. While providing an opportunity to buy real estate at reduced prices, short sales, foreclosures, and lender-owned properties are considered nontraditional home sales. These types of purchases can be complex and take longer than traditional real estate.
A short sale can prevent a home foreclosure. Such a sale is a real estate transaction in which the lender allows a property owner to sell his or her property for less than the amount owed. The contract between the buyer and the seller is subject to third-party approval of the lender. For the homeowner, advantages include avoidance of a foreclosure on his or her credit history and partial control of the monetary deficiency. However, for the buyer it can seem to be a long process as the lender determines the current value from Broker Price Opinions (BPOs) and appraisals as well as negotiating payoffs with lien holders for less than what they are owed.
The property eventually may go to a sheriff’s sale. Several factors that may influence the lender’s bid, but it is usually at the remaining balance of the mortgage loan plus past interest due, and, if no other buyers step forward, the lender walks away with the highest bid. The property then goes through a period in which the homeowner has the right of redemption. A month or so later, the judge may confirm the sale, with the lender receiving title to the property. If that is the case, it is now in the inventory of the lender.
Lending institutions refer to their inventories of foreclosed properties as REO (Real Estate Owned) and sell them through chosen real estate agents. They will again determine current value through BPOs and/or appraisals. Once a foreclosed property is an REO, its title is usually clean.
If you are considering this type of real estate transaction, it’s imperative to work with an expert who knows the process and the market area(s) you are considering. Keefe has been assisting Fannie Mae, Freddie Mac, and third-party companies in the management and sale of distressed and foreclosed properties for more than 20 years.
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