Foreclosure, Foreclosure, Foreclosure, what is it really?

I wish the media would quit it's lumping of everything under one heading. It's leading the public astray and I get many phone calls during the week wondering asking what is what. For example, is a short sale a foreclosure? NO, a short sale is the tedious and time consuming process leading up to a foreclosure in which a owner attempts to sell his home while at the same time negotiating with his lender to reduce his debt.

What is a foreclosure then? This is the legal process by which a lender takes the property back from the owner. Can they be bought? YES on the courthouse steps, and don't count on getting a title insurance policy immediately, you'll get any and all liens that come along with the property. A bargain? Hardly.

The third stage is a REO real estate owned or bank owned listing. This is when the lender has finished the foreclosure process and now owns the home outright. A more conventional type of real estate purchase transaction where the lender is now the seller you and your realtor will be dealing with. Bargain? Rarely. No disclosure by the lender is made on these properties because they don't want the liability if they made an error. Its basically an as-is purchase, and the bank isn't going to give up alot of their monies initially just because it's on their books. If it is priced correctly the markets buyers will ramp these right up to the rest of the neighborhoods comparables may fall into based on the same standards of a normal home. Why do they seem lower priced than others in the neighborhood? If you were losing your home, would you worry about a leaking sink or bathtub or marks on the walls? Most of these previous owners don't. And you will probably be buying a home that is going to need some work either in painting, flooring or general repairs.

Lastly, the auctions, a bargain? Absolutely not. Get the homes at the REO stage and deal with the repairs, you probably bought the home at below previous market value. Unless you would like to pay an auction a few thousand dollars just for the opportunity to bid and even at that you will be bidding against others who may or may not know the actual value of what they are bidding on. Generally a waste of time, but occasionally a bargain can be had, but not very often from what I am hearing from others who have tried this route.

Now if you are an investor some of the rules change.

Still have questions? Call us.