FORECLOSURES, REOSAND SHORTSALES: WHAT IS THE DIFFERENCE?

WHAT IS A FORECLOSURE?

Foreclosure is the legal process that allows a financial institution, usually a bank, to recover the amount owed to them on a defaulted loan by taking ownership, called repossession, of the property securing the loan. The foreclosure process begins when the owner/borrower defaults on the loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens.

WHAT IS AN REO?

REO stands for “Real Estate Owned which means that a financial institution, usually a bank, has foreclosed on a property and now owns it.

WHAT IS A SHORTSALE?

A short sale is the process in which the seller's lender, usually a bank, has agreed to sell a property at less than the value of the existing mortgage.

Very often the lender will consider a short sale if the owner has paid more than the property is now worth and has decided to stop his mortgage payments.

However, just because a property is listed with short sale terms does not mean the lender will accept your offer, even if the seller accepts it. In a short sale the lender is making all the final decisions, NOT the owner, and there is no negotiations allowed.

REO vs. SHORT SALE?

 

If you decide that you want to purchase an REO or a Short Sale, you need to completely understand the process required to complete the sale.

REO

An REO is usually sold at today's market value. Financial institutions incurred great costs in the foreclosure process, and they will try to recover as much of its costs as possible. However, from time to time, a lender wants to quickly sell a property and will offer it for sale at a discount

In an REO the lender usually replies to your offer in a few days and a short negotiation is allowed and expected

Lenders are expecting a quick closing. Usually less than 30 days

HOW BANKS SELL REOS

When selling an REO, the process is similar to a traditional real estate transaction in which the buyer and seller negotiates the price with offers and counter-offers. Each lender/bank works a little differently, but they all have similar goals. They want to get the best price possible for their property and they do not have to substantially discount the asking price.

Once you make an offer to purchase the property, banks generally present a counter-offer, as they are obligated to show their investors, shareholders and auditors that they are attempting to get the highest price possible for the REO.

Your offers or counter-offers will probably have to be reviewed and approved by several individuals. Even once an offer is accepted, the lender may insert language stating “subject to corporate approval with 5 days."

Lenders always want to sell a property in "as is" condition. They will allow you to get all the inspections you want, at your own expense, but they most likely will not agree to do any repairs. “

If the repairs are extensive, sometimes they’ll re-negotiate to save the transaction, instead of putting the property back on the market, but don’t take it for granted.

Banks do not want to see a lot of proprietary disclosures.

Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."

SHORTSALE

Usually a short sale will be sold at slightly less than today’s fair market value. The lender does this to avoid the expense and time associated with the foreclosure process

A short sale can take 6, 9 or 12 months to complete

In a short sale the lender is “calling all the shots and there is no negotiation allowed

The short sale process is complicated. Your broker needs to be skilled in the handling of short sale offers and negotiation with lenders

HOW BANKS SELL SHORTSALES

When entering a short sale you need to know that the process is nothing like a traditional real estate transaction. The lender is “calling all the shots and there is no negotiation allowed from the buyer. The final sale price will be determined by the lender, NOT the buyer or seller, and the price on the contract does not have to be honored by the lender.

The lender will do their own appraisal and they will start only after a sales contract is offered to them for their consideration. Once they determine the selling price, if your offer is not market-value, or very close to market-value, they can reject it and ask for an offer that matches their price.

There are a few things you need to be aware of as a buyer of a short sale property:

You must be an all-cash buyer as financing is usually not allowed

You must show proof of funds when you place your offer

It can takes usually 6, 9 or even 12 months to complete

In a short sale it is important to understand that the Sellers must show financial hardship for the sale of their property to be approved by the lender. The Seller will be required to provide many personal financial documents and must constantly send monthly financial updates during the short sale process.

Often the lender may lose a copy of a document which can “freeze the entire process until the document is replaced. The amount of time and follow-up that is required can be extensive and must be completely understood before entering into a short sale contract. For that reason buyers should only work with very experienced Realtors to pursue short sales.

The best way to succeed in a short sale is to place an offer that is close to the market value of the unit. Remember, your offer is always going to be subject to lender approval so you must be very patient if you want to successfully complete a short sale.

WHY YOU SHOULD WORK WITH CVR REALTYâ„¢

CVR Realty maintains a full-time staff of well-trained real estate professionals who continually make every effort to provide top quality service, knowledgeable and efficient responses, with a high level of practical experience, to all our clients and customers.

We have created an outstanding team of REO & Short Sale professionals specializing in each aspect of REO & Short Sale disposition. Utilizing all their skills, the team at CVR Realtyâ„¢ is able to professionally handle all your needs.

Our web site is designed to provide the information you need to make the right real estate decisions and preview the best Miami real estate deals update daily. Click on foreclosures so you can see, Bank REO, Government, Federal, VA, FHA, HUD and Auction properties. Our up to date information together with our professional sales team specifically trained to efficiently work with foreclosed properties will work for you in order to close the deals.

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