FAQ on Buying Short-Sales or Pre-Foreclosure Properties

“Short sales” and “foreclosures” are words synonymous with real estate nowadays. Below are answers to frequently-asked questions about short sales and foreclosure to help you find out if a short sale is right for you when considering a home purchase.

1. What is a short sale?

A home labeled as a “short sale” indicates the current homeowners owe more on their mortgage than what the home is worth. The difference between the two is called a “short.” The short is a debt forgiven by the bank in a successful short sale.

2. When does a short sale occur?

A short sale can be initiated by the homeowner anytime he or she foresees a hardship in paying the mortgage. This may occur prior to or during missed payments. After three months of missed payments, the lender sends a notice of trustee sale to the homeowner detailing the date his/her property will be sold in a public auction. If the property does not sell in the auction, the lender takes back the property. At this point the home is called “REO” — Real Estate Owned or bank-owned property.

3. Where can you find the best foreclosure deals?

There are three ways you can purchase a property in foreclosure. First is the pre-foreclosure or short sale. Second is a government-held public auction and third is the REO stage.

Depending on your expertise and your goals, any phase can offer a rewarding deal for you.

In a short sale, the buyer negotiates with the seller and the bank, although all negotiations are lender-approved. Short sale homes typically need some work and may sometimes appear neglected. Responses to offers may take a few days to up to three months, depending on bank policies and previous paperwork done on the property. A short sale may be for you if you have time to wait on the response and the money to make any repairs.

A public auction might be for you, if you are confident in how the bidding process works. However, you may have to bid on a property “blindly,” because many homes in a government auction are not available for showing unless they are marketed publicly prior to the bidding.

Finally, REO properties can be marketed, among other ways, via a private auction or through the MLS. The bank or listing agent typically may have cleaned and retouched the home to make it look appealing.

There are many REOs that are being sold for 10- to 20-percent below comparable homes. Banks are not in the business of selling homes. The sooner they get the homes off their books, the less costs they incur. For this reason, banks may be open to negotiate on price. REO homes are sold as-is, without repairs and without any disclosure of the condition of the property. When buying a home in foreclosure, the standing policy is BUYER BEWARE!

4. Are all short sales successful?

No. The lender may decline a request for a short sale by the homeowner for several reasons, including:

  • The lender determines that the homeowner is not facing a true hardship and can continue making mortgage payments; or
  • The lender believes it will profit more if the home is sold as an REO than as a short sale.
  • A common issue among Realtors listing a short sale is trying to hold on to the buyer who made an offer. Because of the length of time it takes for a response from lenders, it is common for buyers to walk away from an offer to look for another home.

5. Where do I find out about short sales or foreclosure homes in my neighborhood?

Realtors have access to a list of short sales and REOs marketed via MLS. You may also look online for websites such as Realtytrac.com to get a list.. This website offers a free trial but charges a monthly fee to continue using it. You may also visit your county office to see a list of foreclosures in the area you are interested in,. or visit infoclosure.com to subscribe to an. up-to-date list of foreclosures. This website also offers free courses on short sales, auction process and foreclosures.

If you are thinking of taking advantage of the buying opportunities in the current market, try seeking the expertise and experience of a trusted and knowledgeable Realtor. He or she will simplify the process for you and direct you to the best deals in the areas you are considering.




4 Comments Add your own

  • 1. mida  |  February 20, 2009 at 1:03 am

    love this info!

    Reply
  • 2. Dorothy Aguilar  |  September 27, 2010 at 1:29 pm

    Is there any way that I could trade my home for another home of the same value?

    Reply
    • 3. arizonabargainhomes  |  September 27, 2010 at 4:12 pm

      Yes. It is not a popular choice but it can be done if you find two sellers who love each other’s house enough to buy it. In addition, the value of the houses could be as close to each other and no lender approval is required.

      Reply
  • 4. Raymond Kowantz  |  October 31, 2010 at 11:49 am

    Buying at Trustee Sales can be wonderful and lucrative manner in which to purchase propertie[s].

    However I urge you strongly if you are no qualified and a professional at this buyer beware.

    Buying Bank Owned Properties and buying Short Sale properties is a much better choice for the average buyer in my professional opinion.

    If you have time and patients to wait out your short sale purchase you can make a good solid deal.

    The protection available for the consumer in a short sale purchase is so much greater then purchasing at a Trustee Sale.

    Once again I strongly suggest the average buyer to first consider short sale, your patients will be rewarded.

    One simple mistake at a Trustee Sale can be devastating to the average buyer.

    Reply

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