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REO, Short Sale, Distressed?
There’s a lot of buzz in the media right now about distressed properties, foreclosures, short sales, bank-owned homes, repossessed homes, and whatever other names you’ve heard but may not really know the technical definition for.
First, let’s address the term “distressed property.” Does this mean the paint is peeling and the roof needs replacing? Possibly, but not necessarily and not techincally. The term “distressed property” is used in the context of buying and selling real estate to mean a home that is at risk of foreclosure or in the process of foreclosure due to non-payment of taxes or default under the terms of a mortgage.
In plainer English, it means the seller’s been missing payments and Big Brother and/or the lender is going to have a say in any potential sale of the home.
There are two forms of “distressed properties” we see on the regular Bellingham market (and everywhere, really). They are short sale and REOs, or “real estate owned” properties. (When you hear “repossessed” or “bank-owned” that’s an REO.)
Short Sale
A short sale listing is a distressed property where the proceeds from the sale are not enough to cover the closing costs and mortgage balance, as well as back taxes and any other liens on the property. So to sell a house through a short sale, the lender(s) and other lien-holder(s) have to agree to a reduced payoff for the title to transfer to a new owner. Typically, but not always, a short sale seller has begun missing payments and is facing a foreclosure.
I tell every buyer I work with who wants to try to buy a short sale that it’s an absolute coin-toss. Banks can take forever to give approval — or denial — of the sale, and the seller ultimately has the last word whether they’ll accept the bank’s terms of debt-forgiveness (or not). Just today I got a recission from a buyer’s agent after they waited for 7 months for an answer from Bank of America… and we still don’t have the answer. NOBODY likes that situation.
To go after a short sale house, you need the patience of Job and an investor’s indifference if you don’t get it. Right now there are 19 active short sale listings in Bellingham, 33 pending, and in the last six months 27 have sold and 27 have cancelled or expired without a sale. See, a coin toss.
REO — real estate owned
REOs — or real estate owned – are where the foreclosure process is already done, the house has gone to auction at the courthouse lobby, didn’t sell, and now the bank has it back and is listing it for sale. Now these you can buy! If, that is, you beat the other buyers first.
REOs can sometimes come on the market for well below market value and garner multiple offers on day 1. They sometimes offer favorable terms like included closing costs, a home warranty, and occasionally a screaming interest rate if you finance through the selling bank.
Right now there are 15 active REO listings in Bellingham, 10 pending, and in the last six months 33 have sold and 3 have cancelled or expired without a sale.
Drop me an e-mail. I’ll send you a list of all the distressed property listings on the market.
[...] wrote last week about the difference between REO and Short Sales. I guess focusing attention on that category of homes had a “law of attraction” [...]