Distressed properties fall into two broad categories:
Foreclosures or REOs (real estate owned), which have become the property of the bank due to the homeowner failing to pay the mortgage for several consecutive months.
Short sales or “pre-foreclosures,” where agents negotiate with banks to accept a sales price and loan payoff that is less than the mortgage amount. Short sales occur in instances where home sellers are “underwater” on their mortgage, which means that the amount of their current mortgage exceeds the market value of the home.
There are three ways you can buy foreclosures and each one has its own distinct concept:
• Pre-foreclosures, or Short Sale, the property is listed by a real estate broker just like normal sale, the home owner is still the seller, you sign contract with the seller (home owner), and the listing broker will send to the bank or or banks for approval, the process is very long, it ranges from 3 months to 6 months, sometime it takes a year to get approval or the home become foreclosure;
•Trustee sale or at Auction. A Trustee’s Sale is s public auction that is open to all bidders and the property is usually awarded to the highest bidder who meets all the criteria set by the Trustee.
• REO or bank owned properties. An REO is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. Most foreclosure auctions do not even result in bids. A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.
It is crucial that you have a qualified agent represent you when you buy a distressed property, many of these properties require a lot of work due to lack of maintenance or even intentional damage. It is important you inspect the property and understand what you get into, the banks are not likely to agree any repair before selling foreclosure properties, “As Is” is almost always in this type of sales, so do your home work and due diligent.