Short sales vs. REO's

When you look for their next home, you may find a short sale or REO that meets your needs. From the beginning of 2007 to the end of 2008, the number of short sales doubled and, during 2009, they doubled again. Many homebuyers are inclined to shy away from a short sale or REO because they don't know what is involved in these transactions. You can sometimes purchase a short-sale property or REO at an attractive price, as you know, so let's look at what a short sale is, what an REO is, and how best to approach them.
 
The Short Sale
 
Explain first that the proceeds from a short sale do not, and cannot, cover all the remaining loan balances and other financial obligations secured by the home because the home's market value is less than the remaining loan balances.
 
For the seller, a short sale is often a more attractive alternative than a foreclosure, since a successful short sale may have less of an impact on the seller's credit report than a foreclosure. Under current Fannie Mae regulations, a short sale may enable them to qualify to buy a house again sooner, in as little as 2 years, than if they had gone through a foreclosure, which would be 7 years before they would be eligible again.
 
The home seller would sell their home for less than the loan amount in a short sale and they would not receive any money at the time of the sale. Selling a home in a short sale requires the approval of their lender. In addition, if there are any other loans against the seller's home, like a home equity loan or line of credit, all lenders must agree to the sale.
 
Homebuyers should understand that there are challenges in buying a short sale property. The process can require a lot of time and careful negotiation because there may be many parties who may have a claim on the property.  Homebuyers should be committed to working with their agent and their Mortgage Loan Officer to be sure they have the best professional assistance available.
 
The Uncertain Asking Price
 
One of the related problems in a short sale: The asking price is, in fact, a guess at what the process of negotiations among the lenders and lien holders will require, and that cannot be known with precision until the negotiations have been completed. This means an offer tendered at the first asking price may be turned down, or used as the basis to begin negotiations towards a final price and this is difficult for many homebuyers to understand.
 
The federal government has proposed the Home Affordable Foreclosure Alternatives Program (HAFA). [See www.realtor.org/government_affairs/short_sales_hafa.]
 
The Purchase of an REO
 
If a property fails to sell at the foreclosure sale on the courthouse steps, the lender then owns the property ("REO" means "real estate owned") and its marketing is usually turned over to a real estate professional.
 
In an REO transaction, the asking price is clear, homebuyer must simply take the steps and supply the information required by the lender. In this case, the bank may or may not have discounted the price in order to clear the property from its books. There is a chance, therefore, homebuyer might get a lower price with an REO, but that price may be offset by the needed repair and rehabilitation of the property if it has stood empty for some time.
 
More Information
 
Clearly, homebuyer is at an advantage if he or she knows how these transactions work.  If you need more information or would like to list your home with us give us a call we will be happy to do your Short Sale, 714-457-2351.