Your mom said to look at Foreclosures. Your best friend recently bought a Bank Owned Condo and got a killer deal! Your Office Manager said her son was buying a Short Sale and it was taking ‘forever’ so DON’T buy one of those!
Feel like you are in an Alice in a Wonderland Maze? Everyone speaks English but you can’t understand what they are saying? Let’s unravel this tangled mess so you can know what to expect. And what NOT expect.
- Short Sales, generally, are a PRE-foreclosure house where the Sellers still technically own of the property. The owners have to accept the offer for the deal to move forward. In many states the foreclosure process takes months, so the Lender will consider taking less than what is owed on the house in order to avoid the expense of the Foreclosure process and get the house off their ‘books’.
- A Foreclosure is a house that didn’t sell before the foreclosure process was finalized. It may have become a HUD, VA or Bank Owned home (otherwise known as REO, Real Estate Owned) depending on how the ‘paper’ was traded about after the ink dried at close of escrow.
- A Bank Owned property is a property now on the Lender’s ‘books’. Being on the ‘books’ is frowned upon by those institutions who lend the Lenders money to lend you. Banks are NOT in the real estate business, they are in the Lending Money business.
- The positive aspect of buying these properties is the opportunity to get lucky and find a killer deal. It happens occasionally. But, these Sellers don’t play by the same rules as the guy next door with his house up for sale.
- They do NOT have to produce a Seller’s Disclosure on the property. They are exempt, totally! We’ll call this Neggative #1.
- You may run into Big Boy Lending who not only wants you to be Pre-Qualified by the Lender of your choice but they also expect you to COMPLETELY qualify for the house with Big Boy Lending before they will release the paper work to your lender. Talk about throwing their weight around! Negative #2.
- Many times you are expected to ‘perform’ on the contract by a given date or pay hefty daily fees.
- Having to qualify with Big Boy Lending only drags out the time your chosen Lending Institution needs to get your paperwork finalized. Doesn’t it seem like Big Boy Lending is forcing you to get a loan through them? If you run over the time limit, they will just add those fees to your loan amount. Negative #3.
- Therefore, you have NO clout, NO strategy when dealing with these properties. You can’t ask for the Seller to give you an answer in 24 hours or the deal is dead. The offer may not even be presented to the correct department for a day or two. They generally won’t make repairs or lower the price so you can. Negative #4.
- This Seller holds ALL the cards! The ball is continuously in their court. Why, aren't they motivated? They don’t have a personal interest in the process. Negative #5.
The exception to the above are areas such as Michigan, California, Florida, and Las Vegas, Nevada. I wouldn’t buy in those markets until the bottom is established. Housing may have dropped deeply but how much further will it go? Once the bottom has been established, it is a good time to buy. Knowing your area is KEY to getting a good deal!
Head on over to the forum to chat more about real estate!
Melissa has sold New homes, Old homes, Custom homes and worked with Investors. She now works exclusively helping Investors purchase Under Valued Properties. A SAHM to 3 Lazy Cats, she spends her spare time writing her blog TheCottageRose and putting the Finishing details on her first Frugal E-Book due out in November.
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Good stuff to know. It does get a little confusing.