Making Sense of Distressed Property Deals

If you are in the market for a home, you may see lots of them listed as “REO” or “shortsales” or “foreclosures.”    You may have even seen notices of Trustee Auctions. The best way to make sense of these “distressed” properties is to understand:

1) What each term means.
2) Who the current owner is
3) What the process to purchase the home involves
4) Does the deal make sense

There are lots of bargain properties on the market today.  Not all of them are distressed properties, nor are all distressed properties bargains, once you factor in costs of making them livable and up-to-date.  Here’s some background information to help you begin to make sense of distressed property investing.

What is a Short Sale?

A homeowner offering a short sale is trying to sell the property to avoid foreclosure and is likely to be delinquent or in default on their mortgage for several months due to a qualified hardship. Also, this means the home’s value is less than the mortgage amount the homeowner still owes the lender. Besides the seller and buyer agreeing on a contract, the mortgage holder must also approve the short sale which can involved a lengthy wait.

What is a Pre-Foreclosure?

Pre-foreclosure homes may or may not be short sales. The current owner may be delinquent or in default on their mortgage and is trying to sell before a foreclosure process begins.

What is an REO?

A real estate owned (REO) property is a home owned by an institution (lender, government agency, company) that now posesses the property instead of  an individual. Perhaps the property did not sell at a foreclosure auction or the company acquired the home from a relocating employee and it is now listed for sale by a real estate professional. Many of these properties are sold “as-is” meaning the seller will not repair or replace any problems found be an inspection.

What is a Foreclosure Auction?

A foreclosure property results when the homeowner defaults on the mortgage and the lender puts the property up for sale through a “trustee’s sale” or a “sheriff’s sale.” Many of these property are not open for tours or inspections. Auction properties come with unpaid liens, back taxes, and title problems, and eviction proceedings may not have been completed – all problems that become the purchaser’s responsibility to remedy.

What is an Equity Sale?

An equity sale is a normal sale by a homeowner/borrower who has sufficient equity to pay back all lien holder.

As you can see there are different types of distressed properties. What type to invest in really relies on your level of knowledge, risk threshold, and time frame.  If you are interested in learning more about investing in foreclosures please attend our “Winning with Foreclosures” workshop on July 29, 2010 from 6:30-8:30 at the Keller Williams Offices at 935 New Loudon Road  Latham , NY 12110. The cost to attend this workshop is just $20.00/