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Foreclosures, short sales, REOs: buying a home seems more confusing than ever. What does it all mean?

Foreclosure occurs when a lender issues a notice of default usually, for unpaid payments. If the homeowner is unable to make up the back payments, the lender seeks to have a public auction to recoup monies due. Foreclosures are often as is and without a home inspection to detect possible flaws like termites, mold, water damage, non working heating systems, etc…You may have bought more than you bargained for.

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Buying In A Distressed Market

A short sale occurs when the lender agrees to accept less than the amount owned on a property. It is an option many distressed homeowners will choose to avoid foreclosure. Since the homeowner is not receiving any monies, the negotiations are done primarily with the lender. Short sales can take months to close since the lender needs to accept the bid and the price the house is listed for may not be near what the lender is willing to accept as the selling price. Remember, the lender’s goal is to get as close to market value as possible so your offer may not be accepted even after weeks of waiting.

REOs (Real Estate Owned) are properties acquired by the lender through foreclosure auction. When no one at the public auction makes a bid high enough to cover the amount owed on the property, the lender ends up owning it. This time the lender is the owner so negotiations may also be time consuming.

When considering buying one of these homes, do your homework. Just because the lender will take less than the amount owned on the property doesn’t mean they will take less than market value. Understand what you are bidding on. Speak to a real estate agent with experience in distressed properties, ask your mortgage specialist about the various loan products available and consider all your options carefully. Home prices have fallen considerably over the last few years and mortgage rates are at historic lows so there may never be a better time to own.