Foreclosed, Foreclosure, In Foreclosure, Bank Owned REO.....
WHAT DOES IT ALL MEAN?
As an active Real Estate agent with a myriad of listing types I field dozens and dozens of phone calls each day from buyers and sellers. The level of confusion out there is staggering! It is a whole new world with the record number of mortgage defaults we all have a new vocabulary to learn. If we wonder about how we got to this level of confusion I guess all we have to do is look at the stack of loan documents that the typical loan requires. All those trees ...all that repetitive legal jargon ....all the confusion! Of course loan paperwork is just the tip of the iceberg. Perhaps real mortgage reform will be the silver lining that comes out of this cloud.
Anyway, back to the terminology: to try and clarify this issue I submit the following guidline to terms for the buyer on the open market today. These are true at least in the Southern California Market. If you know of another term in your are best check it out with a local trusted resource.
Short Sale: Seller is still in control of the property. Often still living in it. They are looking for an offer so that they can try to get the bank to accept that and release them from the balance of the loan. At any point during your attempt to purchase the property in this way it could fall into foreclosure. Your agent should stay on top of the sellers situation and watch for the filing of any default notices. There are a thousand little things that could change to from the seller working things out with the bank to sticking their head in the sand to moving out and renting the property. I even had one seller who moved out then moved back in.
In Foreclosure: This is the period after the bank has issued the notice of default and the owner may or may not still be in the property. In California this is a 120 day process from notice of default to foreclosed. This is the biggest limbo period. Owners may work out something with the bank, have a relative rescue them, ignore everything and let the house go to foreclosure, do a deed in lieu (basically cooperate with handing the house back to the bank to avoid foreclosure) - essentially anything. As a buyer this is a risky time to be dealing with the owner. They are under a great deal of stress and truthfully anything can happen you should never count on these sales, ever. In California there are also laws about purchasing any equity the owner may have if you are an investor and not buying it as a primary residence. So caution is the rule of the day.
Foreclosed: This is a home that the bank or an investor now owns. They have completed the foreclosure and they are now the legal owner. The bank typically hires a realtor to list the home and get it sold. Usually these are the easiest and best buys for the buyer. The bank wants it sold, has the authority to sell it and you can usually have a standard escrow period.
Bank owned - REO: Two terms that mean essentially the same thing. The bank or some lender (sometimes a private party) owns the property.
The fastest way to get a property is once the bank has foreclosed and they are the owner of record. It may take a little while to get it on the open market but once it is you can proceed with a purchase pretty quickly.
Many people ask about buying a foreclosure on the courthouse steps. This is still done. Once the bank goes for the foreclosure it will be available in this way. Most times the bank is looking for a bid higher than or at least equal to what they are owed on the property. Because of this most properties are not bid on and the bank sends their representative to the sale and they buy the property back for the amount they foreclosed on.
I can't imagine buying a property this way unless you are very certain that the value is there and have some idea of the condition of the property. If a $500,000 house is really on the being sold on the courthouse steps for an amazing deal - you will have competition in the bidding process!
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