Distressed Properties
In today’s market buyers are faced with terms such as bank owned, HUD owned, foreclosure, short sale, REO property and more. All of these can be labeled distressed properties, but there are some big differences when it comes to buying them.
Bank owned properties are homes that have gone completely through the foreclosure process and title has been transferred to the “bank” (although it may not technically be a bank) so, these properties can be labeled as bank owned, REO (real estate owned), or just foreclosed properties. HUD homes are properties that had an FHA (Federal Housing Administration) insured loan that was foreclosed on and the title has transferred to the Department of Housing and Urban Development. When buying a Foreclosed home a buyer will be dealing with the “bank” or more likely a company that represents the banks in the sale of foreclosed homes. Since most of these companies operate nationwide they use their own forms, rules and addendums. It is a bureaucracy, so decisions may take some time and special needs and circumstances may not be addressed as well as if you were to buy from an individual. The perception is that you can get great deals from these bank owned homes, but in reality most homes do sell for what they are worth. Some of the low prices are due to condition, not the need for the banks to sell these homes off quickly. Banks do however follow the market closely, so they are much more likely to price the home competitively than many individual home sellers do.
Pre-foreclosures are homes where the owners have stopped making mortgage payments and the bank has started the foreclosure process. With these homes the buyer will be dealing directly with the homeowner. However they may also need to work with the bank, usually to delay the foreclosure sale, depending on how far along the foreclosure process is. There are also special rules in Colorado for investors buying homes in the foreclosure process.
A short sale is when the value of the home will not cover the full amount of the mortgage(s) owed. In almost all cases they are in the foreclosure process as well. This is the most complicated of these transactions. The buyer must deal with the homeowner and also the bank(s). The bank needs to determine if the homeowner is truly unable to pay, if they have other assets to help pay off the mortgage and if it makes sense to take less than what is owed. All of this can take a lot of time, especially now since there are so many homes in this situation. On the plus side these are probably where the best deals are. But they are not easy. Homeowners are allowed to keep the homes active on the market and accept more than one offer. The banks encourage this to hopefully bid up the property. Ask yourself if you are interested in finding a home, that may be a deal, or a deal that’s a home.
Every real estate transaction is different, so it’s important to have an agent with experience that can answer your questions and help guide you through the process to your goals. Call me with any questions. I’ll put my 26 years of experience to work for you.
