Fourth Post

REO vs. Short Sale

I will briefly explain the SHORT SALE process and the REO (real estate owned) process to you.
A SHORT SALE is when the lender has a mortgage on the property for more money than the home is worth at today’s value.   The seller owes the mortgage amount and cannot pay the amount in full because they cannot sell the home for what is owed.  The seller is still the legal owner and has not been foreclosed upon.
The lender has to evaluate the property to see how much it will sell for at today’s value and then agree to reduce the existing mortgage amount to facilitate the sale of the property, thereby agreeing to accept the loss incurred between the current mortgage and the new sales price along with all the costs associated with the transfer of the property.
The lender has a choice of reducing the mortgage amount to facilitate the sale of the property or to begin the foreclosure process.  Unfortunately, it is not uncommon that a lender refuses to agree to the mortgage reduction that is reflected in the list price of the property.
A real estate agent usually lists the property for sale without having an agreed-upon sale price from the lender.  The list price that the agent uses is oftentimes at a much lower price than the bank will agree to allow the home to be sold.  This process is cumbersome and lengthy.
The reason for the lengthy process is that the number of foreclosures and short sales are at a record high, and the lenders literally have hundreds of files on their desks to evaluate and respond to.  Lenders will tell you to expect a four- to five-month wait time for a response to an offer to purchase.   Only occasionally is the lender able to respond in a timely manner.
So when a buyer makes an offer on a home that is in a “short sale” situation, they do not know how long the process will take for them to get a response to their offer, and they do not know if the lender will accept their offer, counteroffer it at a much higher price, or accept another offer that is likely to be on the table at the same time.
On the other hand, REO, BANK OWNED or LENDER OWNED are synonymous terms and carry a much different status than the SHORT SALE.  This status is when the lender has foreclosed on the property, evaluated the property, is the legal owner of the property and therefore able to make all decisions regarding an offer to purchase in a timely manner.  The buyer should have a response to their offer within several days.
Right now, the REO properties present a very good opportunity to purchase a home below market value, due to the fact that the lenders holding these properties are anxious to have them sold quickly to reduce the inventory of foreclosed homes they are carrying.
Please call or email me with any questions you may have.