What Are Short Sales?

and what is the difference between

Pre-Foreclosure and Foreclosure

and REO/Bank Owned homes?

If you have been looking to purchase a property lately, the majority of the market may seem to be in one of these categories. Many people are disappointed when they find a home they love and then discover that it is in Pre-foreclosure and will be a Short Sale.

When a home is in Pre-Foreclosure it means that it is in the initial stage of foreclosure. The owner has fallen behind on payments or stopped making them altogether and the bank has given notice that it will take the property if the loan is not brought up to date. Usually the seller is upside down and can't sell the house for what is owed, due to the declining market values, and is trying to short the bank the difference, referred to as a Short Sale. The bank wants to recoup as much money as they can, and the homeowner must prove the reasons why they are unable to repay the debt they incurred. Often, the banks are understaffed and overwhelmed with the amount of files and paperwork they have and this makes the process of completing a short sale timely, usually 45-90 days (A LONG sale). There are exceptions and all the lenders handle the cases differently, but for people needing a home on a particular date, due to the sale of another property or a lease expiring, these may not be the best properties to get involved with.

The following verbage will be in a Short Sale listing:

• "In Foreclosure"
• "In Pre-Foreclosure"
• "Short Sale"
• "Sale contingent upon third party approval"
• "Sale price is insufficient to pay the total of all liens and costs of sale”
• "Listing price may not be sufficient to cover all encumbrances, closing costs, or other seller charges and sale of property at full listing price may be conditioned upon approval of third parties"

If a short sale is not negotiated within the bank's timeframe, a foreclosure takes place, the owners lose the home, and the property goes to the lenders REO (Real Estate Owned) Department and is now termed Bank Owned. They want to liquidate their inventory (they are in the business of lending money not selling real estate) and price these houses very competitively and respond to offers usually the same day or within 72 hours. If there was a second mortgage on the property that is usually wiped out, thus saving buyers thousands. The bank also lists the properties lower than the competition to move them quickly, and we have actually seen bidding wars lately because they have been priced so attractively.

In summary, if you have no timeframe or are shopping for a lucky investment property, a short sale may be a good prospect. But, in a buyers market, giving the banks the opportunity to accept multiple offers and competing with others may not be the most desirable position to be in if you like having control of the negotiations. 

Hopefully, this info helps clear up the confusion and questions we have had from so many clients.