By Ken Cash, Broker, CRS Coldwell Banker Incline Village Realty Lake Tahoe CA & NV
WHATS THE DIFFERENCE? Bank Owned, Short Sale or Foreclosure...
In my daily business, receiving calls, making calls to my peers, to you and many others and what I've discovered is that most people both inside the industry and outside don't understand the differences between them.
What I have learned and applied to my business I hope will give you an idea about how to go about buying a Lake Tahoe foreclosure, short sale or bank owned property. There are some great deals to be had in Incline Village, but buying them can be very complicated. I urge you to call me to help guide you through this unusual and what I think is a rare opportunity.
Bank Owned: When a home goes to the Trustee Sale and is not sold there on the court house steps (yes they actually bid on them right there in Reno on the court house steps), the property goes back to the bank (or mortgage lender) as the case may be, and becomes an REO. That stands for Real Estate Owned or better known as Bank Owned. They are also referred to as a Foreclosure as unfortunately for some family or investor, the property has been "Foreclosed" on. In almost every case, the homes are sold "AS IS" so you must be very careful. These properties are generally listed with a Real Estate Agent who puts the information in the Multiple Listing Service also known as the MLS. Unfortunately, far too often the bank or mortgage representative known as an Asset Manager, list the property with this agent who is not in the local marketplace so locating and identifying not only the property, but where to find the agent can be time consuming. These homes and properties generally have had liens, additional mortgages, homeowners fees, utility fees placed against them. So working for you, I need to make sure these are all found in our due diligence and removed so we can move along much faster and in the end have a cleaner transaction. I don't want any unknowns after you close escrow that you and I must resolve.
When we present an offer the acceptance time typically takes from a few days to a couple weeks and on occasion much of our work is done verbally until right at the end. I must move your offer forward but not push so hard we loose the buying opportunity. The work loads of the asset manager to whom the property has been assigned are very stressful. Not all deal well with this. I am very accomplished at this, have managed many transactions, so this will all be OK. In some markets, the property can be very distressed, however, here in Lake Tahoe, they seem to always be in reasonably good condition, however, and we will still want to have inspections done. And as in all of these buying opportunities, you need to be pre-qualified by your lender or if paying all cash, provide me with proof of ability to perform. We need to submit that paperwork with our offer on day one. If there is another interested buyer, this may just give us the extra power to win the home for you.
Foreclosures: The word can be misleading as often the property is in a pre-foreclosure where the owner is behind in their payments by several months and the bank has issued them by mail a "Notice of Default" and probably set a date for the Trustee's sale I mentioned above. During this time between the issue of notice of default and the time of the trustee's sale on the court house steps, the homeowner can sell their home and pay off the bank or mortgage company. There are also other measures that can be taken to avoid the foreclosure such as government programs now being proposed. Owners can contact their lender and defer payments or make other arrangements. I truly hope they do and they can. Neither you nor I want to see anyone loose their home.
But if not, the day will arrive and the home will be sold or at least an attempt made to sell at the Trustee's Sale. On this day, the home is sold in a bidding environment and the purchaser must pay for the home in cash or cash equivalent right there right then, at the time of sale. There is no time available to arrange financing. Remember the liens and other mortgages that I mentioned above? You may be buying those as well. You had better be taking great care and caution and know exactly what you are buying. The reason this happens is the trustee may be selling the property for the holder of a second or third mortgage and if you buy under that scenario you could be also be buying the first mortgage and who knows what else. And don't forget, you will be liable for taxes, homeowner association liens, utilities and other liens as well. So as the saying goes, "Buyer Beware".
Short Sales: If the property owner wants to avoid foreclosure and the bad credit that goes along with it, they will attempt to sell the property before the foreclosure takes place. A short sale will be between you and the property owner of record, but the bank must agree to the terms of the sale by discounting the loan balance. Your offer to purchase will likely be less than is owed to the bank or mortgage lender. We will be negotiating with the home owner and the owner in turn will negotiate with the bank who must agree to accept less than is owed when the home is sold. Likely the property owner will owe the difference to the lender bank even after proceeds are given to them. That is why this part takes so long. This is often the trickiest part and why most short sales do not close escrow. The property owner can accept your offer, but that doesn't mean it's a done deal. No no no. The bank must accept the deal too. I have many times experienced the banks rejection of the offer that we and the seller worked so hard to reach. Too often what happens is the buyer and seller agree on the price, and the bank takes weeks to even months to approve and in the mean time, the Trustee's sale and foreclosure happens first. So when I am not too excited about the short sale, it is because we both need to plan on us having 2-4 months for the process to take place and hope we can successfully close escrow. During that time too, you will probably be spending money on inspections, appraisals, escrow fees and if the opportunity fails, you are out that money. There is also in most cases a statement that says, "Not a settlement-in-full" and the deficiency balance remains against the seller. When the seller finds that statement, they too can become less than excited about the process.
I hope this has been of help to you. You should call or email me with your questions. We should also go out and find these great properties, these great homes. Fortunately for everyone, this opportunity will not last forever. As a friend said to me recently, "the money never goes away. It just changes pockets." Let's change some of this money and opportunity to your pocket.