It seems as though many buyers that I’ve worked with lately have a misunderstanding or just a lack of understanding of foreclosure properties. This makes sense, as there is a lot of confusion surrounding the process.
Pre-foreclosure, otherwise known as a short sale …
Once a borrower misses 2 payments in a row the lender issues a notice of default (NOD) and the foreclosure process begins. The borrower has roughly 3 ½ months (maybe longer) before their home is foreclosed upon, unless the default amount is brought back to good standing.
Typically a home owner, that falls on hard times and cannot make their mortgage payment any longer will sell the home, if only to get out and break even. During time as these where homes values were inflated and now in decline, many owe more on their loan than their home is worth. A short sale is an option… that few find come to fruition.
A short sale is the scenario described above, where the loan(s) on a property exceed the amount of the home’s value. If the short sale is to close, the home owner will have to
1) Procure an offer during the 3 ½ month default period
2) The seller has to show hardship – e.g., loss of employment, divorce, medical condition, etc.
3) [The hardest piece of the puzzle] The lender will have to forgive the difference between the loan amount (plus real estate expenses) and the offering amount. This piece is why most short sales do not close. Prior to listing a short sale, most agents do not know if the lender will entertain a short sale, let along be willing to take a huge loss on the property.
4) [The second most difficult piece of the puzzle] The buyer will have to be very, very, very patient while they see other, potentially better deals pop up all around them. Lenders usually take a long time to respond. I’ve heard claims of short sales closing in 30 days – since I believe in miracles, I believe it. But from my own experience and the other agents I’ve surveyed the process is usually in the realistic range of 2 – 4 months. AND, many times a potential buyer waits around 2 month or longer, only to be denied by the bank, or to see the house go into foreclosure. I love the marketing remarks on one short sale listing that read,”If you do not like disappointment and let-down, or are at all impatient, then this home is not for you.”
I’ve had many potential clients call and say, “I’m looking to buy a foreclosure.” I think what they are really saying is, “I want a good deal and I heard on the news [or from a friend] that there are some great foreclosure buys out there!” And they are right, sort of. There are great buys in Sacramento, but they are more likely than not Bank Owned properties, rather than a true foreclosure.
Foreclosure
This may just be semantics, but a true foreclosure is sold at auction at the county courthouse. There is a minimum price set and the auction begins. The potential buyer has to attend the auction and has to have cash in hand (a cashiers check will do) to pay the full payment immediately following the sale. As you can see, buying a foreclosure at the courthouse auction is not for the faint of heart.
Bank Owned
If no one meets the minimum bid then the property reverts back to the bank. Sometimes you will see the initials R.E.O., which mean Real Estate Owned, another term for Bank Owned. These are the properties that are most prevalent in the Sacramento area and most of the time the best deal.
Still want to buy a foreclosure? Let me show you a less painful way of buying…
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