Suzanne Plewes, RE/MAX Alliance in Loveland

Suzanne Plewes, RE/MAX Alliance in Loveland

LOVELAND – There was a time when Short Sales, Foreclosures, and Bank Owned properties were common in our area. Even though our housing market has soared past those days, we still see them on occasion. Most people assume that short sales, foreclosures and bank owned properties are the same thing. They are actually quite different. If you’re looking to buy a home and come across these terms, it’s important to understand what they mean and how they will impact your home buying process.

Here’s a quick overview on each of these terms.

Short sales
The term “short sale” comes from the fact that the mortgage company will be “shorted” on what they are owed. In a short sale, the owner wishes to sell the home, but the amount for which it will sell is not enough to pay off the loan plus closing expenses. Therefore, the lender must agree to take a loss and release the lien on the home.

When making an offer on a short sale, a seller must first accept an offer and then submit that along with other paperwork to their lender. It will take time for the lender to review it and there’s no guarantee that it will be approved. Occasionally, a property may be marketed as “short sale approved.” This is likely because the original buyer backed out before the lender issued an approval. In this case, buying is a bit easier since the process was already started.

The buying process for a short sale is the same as for any other property, except that there’s much more paperwork involved. The owner is still technically the seller, but the lender has final approval.

Foreclosures are properties seized by lenders for non-payment.
A legal process is typically completed to perform the foreclosure. Property owners no longer have any right to sell the home. The property is somewhat in limbo as the lender doesn’t entirely own it yet either.

The process for buying at foreclosure is completely different from the typical home buying process. First, there’s often an auction. You must have a certain amount of certified funds to participate in that auction. Additionally, you will be bidding on the property as-is without any opportunity to view or inspect it. In fact, there may even be people living in the home still (in which case, you would be responsible for evicting them). You would also be responsible for any outstanding liens on the property.

Given all of this, you would not be able to use a typical mortgage to purchase a foreclosure. For most home buyers, foreclosures are simply not feasible or desirable given the requirements and risks.

Bank-owned properties (also known as REO)
When a home does not sell at auction, the lender proceeds to take full possession of the property. They will evict occupants, pay off liens, and get the home ready for market. Once ready, a property will go up for sale as a bank-owned home.

There is no special process for bank owned homes. However, there are special circumstances. These homes are normally sold as-is. There is also little to no information about the history of the home since the lender has never occupied it. Lastly, lenders may require additional paperwork (disclosures, sale addendums, etc.).

Are short sales, foreclosures, and bank-owned homes good options?
Whether these types of properties are a good idea depends on your background and capabilities as a home buyer. As long as you understand the special circumstances and risks, then you can certainly consider them as options. Be sure to discuss the pros and cons. Having all of the relevant information will allow you to make an educated decision as a home buyer.

By Suzanne Plewes, RE/MAX Alliance. Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail [email protected].