FAQ- Buying Distressed Properties
Q. What does “REO” mean?
A. Real Estate Owned or Bank owned. It’s the term the banks use to identify their foreclosed properties. These properties can close relatively quick and are usually free of all liens.
Q. What is a Short Sale?
A. Sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. Occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than foreclosing on the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
Q. What is “Foreclosure”?
A. The legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption.
Q. How is a HUD property different from any other foreclosure?
A. HUD homes are FHA-insured loan foreclosures. When someone with a HUD insured mortgage can’t meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home.
Q. How are foreclosure properties identified on the MLS?
A. They are usually not unless specific key words from the listing agent are used in the remarks section. They are listed just like any other property. The best way to find them is by working with a real estate broker who specializes in this kind of home.
Q. Doesn’t the amount owed on the property determine what the bank will sell it for? Won’t the banks sell them for less?
A. No. When negotiating with an asset manager at a bank for the purchase of a foreclosure, keep in mind that this is a professional seller. A good asset manager will order appraisals and hire a broker to advise them about the property’s condition and value. Then, they price them accordingly.
Q. Will the banks repair the properties that are distressed?
A. Sometimes. The asset manager in charge of the property will confer with his broker prior to listing it to determine if it is a good candidate for repair or rehab. Generally, repairs are cosmetic in nature-paint, carpet, replace a torn screen or door.
Q. How are the negotiations handled?
A. The offer is presented to the Listing Agent who presents to the Asset Manager. The Asset Manager will give him a verbal acceptance, counter offer or rejection. All negotiations are conducted verbally until a final agreement is reached between you and the Bank Seller. Once that agreement is reached either the original contract offer is amended or a new contract is prepared containing the agreed upon terms.