Bank Owned/Foreclosed/REO/Short Sales

By
Real Estate Agent with Coldwell Banker

Some things EVERYONE should know.....

 

The times have definitely changed, and several new terms have crept into common usage in real estate.  Words like "short sale", "REO Property", and "bank-owned" each carry their own meaning and implication, and you need to be familiar with what they are.  Can't have you not keeping up with the times, can we? 

 

 

The easier terms to understand are "bank-owned" and "REO".  "REO" simply stands for "Real Estate Owned", so these two have basically the same meaning.  When you see these words, the property has already gone to foreclosure and it is the bank that has listed and is selling it.  The asking price is generally very attractive and well below market value, and the decision of how much will be accepted for the property has already been made.  With this preliminary work having been done, the bank is in a position to move quickly, so the time frame from contract to settlement is about the same as it would be for any other sales transaction.  In many cases it's even easier than dealing with the original owner because the bank has no emotional attachment to the property.  The thing to keep in mind is that the bank does not want to be bothered with dickering about the value of furnishings or the cost of repairs to be made.  They will accept a certain price, but they're not going to start paying for things like worn carpets, broken windows, or faulty dishwashers.  In many cases, they won't split transfer taxes, either.  The bank says take it or leave it, and doesn't get upset if you walk away.

 

Short sales are another matter entirely, and should not be properties you pursue unless you are willing to wait...and wait...and wait.  A short sale occurs when a Seller owes more on a property than the property is worth and can no longer make the mortgage payments.  Once that Seller has missed a few payments the case is turned over to the Lender's "Loss Mitigation" department which requires a substantial amount of documentation from the Seller up front.  The Seller lists the property with an agent and waits for an offer.  When that offer comes in it is forwarded to the Lender for approval.  Any number of factors can impact the speed with which a response from the Lender is forthcoming.  These range from the enormous number of cases of this nature and the Lender's lack of personnel to process them in a timely manner, right down to documentation not having been forwarded to the Lender by the Seller or the Seller's Agent.  The Lender doesn't take the time to beat up the Seller for additional paperwork when something is missing.  They put the file aside and work on another until such time as the Seller contacts them and asks what the problem is.   Frequently, months go by and in the end, the offer that has been submitted is rejected.  Over fifty percent of such offers are. 

 

If you need to sell another property in order to purchase, neither foreclosures nor short sales are for you.  The bank will not accept any offer with such a contingency.  They want a nice, clean offer from buyers who are ready to go.

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