The difference between sale conditions such as Foreclosure, Short Sale, and other real estate terms ~

The real estate market in Indianaand the whole country are coming to grips with terms that are relatively old, yet considerably relevant to our current market conditions. I am often asked to explain the difference between sale conditions such as Foreclosure, Short Sale, and other real estate terms.

I have gathered some information for Indy Area Home buyers so the next time you come across phrases that explain the provisions for the sale of a particular home, you might be better informed and less confused:

What is a Short Sale?

A short sale is when a lender agrees to sell a home owner’s property that is in default for less than the loan balance.

Why would a lender consider a short sale? Short sales, in most occasions, are the first step to avoid foreclosure. Although the lender will recover less than the total loan amount in a short sale, the short sale is nonetheless preferred due to the very high costs of foreclosure. A home that is sold in foreclosure will usually cost the lender somewhere between 35-40%. These costs consist of late mortgage payments, attorney fees, court fees, maintenance fees, and selling fees.  

What is a Pre-Foreclosure?

Pre-Forclosure is another term for Short Sale.

What is a Foreclosure?

Foreclosure is a process where the home becomes the property of the lender. Whereas in a Short Sale the home owner’s name is still on title of the property, in a foreclosure the lender takes possession of the house and as a result, the homeowner is no longer a party in the sale. When a home owner fails to make the payments on his/her mortgage the lender can begin foreclosure proceedings. The first phase is the receipt of a notice of default (NOD). At this time the home owner can negotiate a Short Sale with the lender. If the home does not sell within the predetermined time frame, the home will then be auctioned at a foreclosure sale.

What is a Trustee Sale?

A trustee sale is a verbal auction where anyone with the highest bid can acquire a property by paying off the remaining balance on a foreclosed loan.

I urge you to be extremely careful at such auctions due to the very stringent terms of trustee sales. When you purchase a home in this manor you could be at risk of various problems that are investigated by realtors and title professionals in normal sales transactions. These problems are serious!!!! Problems such as: Title problems, Superior loan pay offs, IRS liens, and/or structural problems.  

What is an REO?

 REO is a abbreviation for Real Estate Owned properties. Another name for bank owned properties is REO, an acronym for “real estate owned.”

 When a home does not sell at a Trustee Sale (foreclosure sale) the lender takes back the title and all the rights to the property. The reason homes don’t sell in a trustee sale is not necessarily because of physical or structural problems. Rather, it is often because the home owner (no longer on title) owed more to the bank than the homes Fair Market Value. And who would want to buy a home in a trustee auction for more than the homes that are already on the market?!!!

To sell the house as quickly as possible the lender will, in most cases, make any repair necessary to the property, remove any liens on title, and clear any other issues that may slow down the sale of the property. The lenders are more motivated to sell an REO than any other properties they may have for sale (short sales and foreclosures) because REOs tie up a lender’s capital reserves and the management of these properties can become very costly.

Indiana Real Estate has recently seen more REOs for sale. If you are interested in purchasing a home and making a great deal, buying an REO may be a good opportunity.

Kathleen V. Woods

msWoods Real Estate

kwoods@mswoods.com

317.517.5317

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