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Foreclosures and Short Sales

Bank Foreclosures and Short Sales in many cases can offer an attractive opportunity for a primary residence or investment property. But, both of these transaction types can be complicated endeavors, requiring detailed knowledge and risk assessment prior to committing to a property. It is highly recommended only exploring these opportunities with the guidance of an experienced REALTOR® or Attorney with proper training and understanding of the process and danger points.

Let's start by looked at each opportunity separately.

What's a Bank Owned Foreclosure, aka REO?
"REO" stands for Real Estate Owned. These are houses which have completed the foreclosure process, received a certificate of title, and that the bank or mortgage company currently controls. This is different than a property up for foreclosure auction.

If you buy a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees added during the foreclosure process. The buyer must also be prepared to pay with cash in hand. And on top of all that, you'll get the property totally As-Is, Where-Is. That might consist of prevailing liens and even current occupants that may require removal.

A bank-owned property, on the contrary, is a more tidy and attractive option. The REO property didn't find a buyer during the foreclosure auction. Now the bank owns it. The bank will attend to the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing.

You should be aware that REOs may be exempt from standard disclosure requirements. For example, in North Carolina, it is optional for foreclosures to have a Property Disclosure Statement, a document that normally requires sellers to disclose any defects of which they are knowledgeable. By hiring Rock Springs Realty, you can rest assured knowing all parties are fulfilling Florida state disclosure requirements.

Is an REO property a bargain?
It's frequently assumed that any foreclosure must be a good deal and a chance for easy money. This simply isn't true. You have to be prudent about buying a REO if your intent is to make money. While it's true that the bank is typically anxious to offload it quickly, please remember they are losing money on the loan so their goal is to minimize any losses.

Look carefully at the listing and sales prices of competing homes in the neighborhood when considering the purchase of an REO. And factor in any repairs or upgrades necessary to prepare the house for resale or moving in. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. But, there are also many REOs that are not good buys and may not be money makers.

Time to make an offer?
Most mortgage companies have a department dedicated to REO liquidation. But normally they do not deal directly with consumers. Instead, they typically hire an REO listing agent to get the properties listed on the local MLS, answer questions, and process offers and counter offers. 

Before making your offer, you'll want to work with your REALTOR® in researching comparable sold properties in evaluating a fair market value of the home. You'll also need to factor in the condition of the property and any repairs or maintenance needed immediately upon closing. Since banks typically sell REO properties "As-Is, Where-Is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unknown damage and cancel the offer if you find it. As with making any offer on real estate, you'll be required to include documentation of your ability to pay, such as a pre-approval letter from a lender or a proof of funds letter if you are a cash buyer.  

Once you've submitted your offer, it's typical for the bank to counter offer. Then it will be your decision whether to accept their counter, reject it, or submit a counter offer. Your deal might be settled in a single day, but that's rare. Since offers and counter offers usually give the other party a day or longer to respond (and employees at a bank don't work nights or weekends) you could be looking at a week or longer. Rock Springs Realty is accustomed to these situations and will work to ensure there are no unnecessary delays. 

Each Seller (Commercial Bank, Servicer, Fannie Mae, Freddie Mac, HUD, etc.) has their own set of rules and criteria for bidding, contracting and processing the sale of an REO property. Your Realtor should be able to explain the pro's and con's of dealing with each potential Seller of an REO home. 

As the Broker/Owner of Rock Springs Realty, I have obtained specialized training and certification in the purchase and sale of REO properties. Currently I hold the designation of RDCPro (REO Default Certified Professional). In addition, I have over a decade of direct experience dealing with each Seller type listed above in hundreds of transactions.

What's a Short Sale?
If a homeowner owes more on their home than its current market value, they can attempt to get the lender to agree to a preforeclosure short sale, whereby the lender or investor consents to release the mortgage for a sum less than what's currently owed. There are many moving parts to a successful short sale such as does the homeowner qualify for a short sale, what are the lender or investor qualifications for approval, is the Listing Agent experienced in navigating and negotiating with the lender, is the homeowner cooperative in compiling the required documents necessary for application and processing, is the home in it's current condition marketable, etc.  

Are short sales bargains?
Occasionally. Most people hear the phrase "short sale" and automatically think of a seller that is in default and needs to sell their property promptly to prevent further financial problems. This is occasionally the case and can be an opportunity for a buyer to make the most of another's misfortune. In contrast, a lender may consider a short sale even if the seller is current, but depending upon current market conditions, the lender may be fully cooperative or possibly restrictive on granting an approval. In an appreciating market, lenders tend to want full market value of a home not making them as attractive versus pursuing an arms length purchase. In declining markets, lenders are usually quicker to respond and approve a short sale as an additional means to minimize loses.

Are you ready to buy a short sale property?
Before you make any purchase offers, do your research. Using an experienced REALTOR® from Rock Springs Realty to assist you with researching a property will help you make educated decisions. We can help identify to whom the property is currently titled, the amount owed to the lender, and whether or not a foreclosure notice has been filed. Having this data can help you make a decision about how much to offer.

Making an offer on a short sale property requires knowledge on how to include specific contingencies regarding processing time, escrow deposits, home inspections, financing, and closing dates to name a few. Entering into a contract by yourself or with an inexperienced Realtor can expose you to undue risk, not easily resolved.

Even with an experienced real estate agent and under the best circumstances, buying a short sale property will generally take longer than a typical real estate transaction. Be aware that a majority of short sales will not close in 30 days or less. Remember that you're not only having to satisfy the seller, but the lender must also agree to the terms of the sale. A lot of the time your offer will be seen by a committee to approve or disapprove, which will add time - sometimes even 3-6 months.

Home protection plans, buyer credits and allowances, and closing cost concessions are usually non-negotiable when buying a short sale. The lender will be selling the property "As-Is, Where-Is" which means the lender won't be paying for repairs. Be sure to reserve the right to have the property inspected for pests, HVAC, electrical, and other critical areas. At Rock Springs Realty, when I write an offer, I will be looking out for your interests first and will always advise you to make your offer contingent upon the outcome of the inspections.

As the Broker/Owner of Rock Springs Realty, I have obtained specialized training and certification in the purchase and sale of Short Sale properties. Currently I hold the designation of CSP (Certified Short Sale Professional). In addition, I have over a decade of direct experience dealing with listing and purchasing short sale transactions.

When it's time to buy, whether it is an REO, short sale or a typical home sale, Rock Springs Realty is here to help. Apply my experience and knowledge of real estate to be certain you're getting a fair deal, superior service, expert advice, and remain protected during the complete deal.

For more information, contact me at 877-333-2811 or e-mail at I'm happy to answer questions you have about real estate, bank foreclosures, short sales or any other related topic.