As the Snohomish County real estate market continues to correct itself, more and more homes will be sold as short sales, foreclosures and as bank owned properties. So what are the differences of these types of properties.
What is a Short Sale?
Lets look an example: Homeowner A has a $300,000 mortgage and is forced to sell the property as a way to avoid foreclosure. Faced with selling, A contacts his REALTOR® and schedules a listing appointment. Mr./Mrs. REALTOR® conducts a Comparative Market Analysis (CMA) and determines a list price. A agrees to list the property for $265,000. This is a short sale; when the property is selling for less than the homeowner’s mortgaged amount.
Short sale properties can be more challenging than traditional transactions because all aspects of the Purchase & Sale have to be approved by the lien holder. Adding an additional party to the transaction also slows down the communication process and sometimes the lien holders take twice as long to respond, even on the minor questions.
When viewing properties online look for the verbiage “short sales” and “subject to underline lien holder approval”.
What is a Distressed Property?
At first light it may seem that a short sale and a distressed property are the same thing. This is actually not the case. A distressed property is when homeowner B is behind on monthly mortgage or has a high risk of defaulting on payments and is forced to sell the property; not necessarily selling for less than the mortgaged amount but it can be both distressed and short sale. In this case a seller is looking for a low market time and pricing is critical to get the home sold with the seller netting zero or having to bring money to the table at time of closing.
What is the Foreclosure Process?
Foreclosure is a process and not necessarily a property. To better understand the foreclosure there are specific dates in a timeline when actions take place. The very first part is: when is a property in default? Technically, it is on the 1st day the mortgage payment is late but banks usually have grace periods built into payment terms. This is when the foreclosure process begins and, technically, the homeowner has 190 days before the property is sold at auction (day zero). As the process continues there are some other main time frames: 120 days is the Notice of Default, 90 days is the Notice of Trustee’s Sale and 11 days before Auction is the last date to reinstate.
*Note: Auction date is set at Zero and the timeline works backwards, download full-size image.
An important part of the timeline for buyers of a foreclosed home is the possession date. When a purchaser buys a property at auction the buyer does not receive possession right away even though they have legal title on the property. The date of possession is 20 days after purchasing the property at the court house because the previous owner now becomes a tenant and requires a 20 day notice to vacate (if the previous owner is still in the home).
REOs
REO stands for Real Estate Owned. It applies to a property owned by a lending institution who acquired the property through the foreclosure process. REOs don’t have to be taken back by a bank and can be found at other institutions like the VA, HUD, Fannie Mae, Feddie Mac, FHA, IRS, FDIC, USDA and even the Small Business Association and Army Corp. of Engineers. Like short sales, REOs can take a long time to purchase because of the response time when dealing with the bank and cause more headache that initial impression of “getting a deal”.
What does this mean for the real estate market?
As more and more properties become available that are either short sales, distressed or REOs it is going to affect the price/value of the homes currently on the market. Banks want to get these properties off their books so they can qualify for government bailout funds (which the public will not see any benefit from) and as a result the prices are falling below market value. When these properties close and enter the databases, REALTORS® and appraisers are forced to use when determining the value of a property thus continuing to soften the market.
8 Comments
Very weel written. I wish some more banker reps, understood this better. I wish the banks would move more expeditiously to clear their books. It would save them money by not wasting time without paymnents and declineing prices. It would also get more bids if buyers felt they would get though the process reasonably.
Hi Richard, from what I have heard bank reps do not understand much and from others experiences they are going through the same thing.
Getting through the process reasonably is probably the last thing in the minds of bank reps. I personally think they are just their to collect a pay check and not do their job and help people find remodification solutions or another type of solution. Instead bad records are kept and files are spread out.
My friend who has been having problems with bank reps discovered through his own investigation that the reps handling his case has been sending the wrong information on who to contact. How can a person confused Chase with Wells Fargo?
Toby, I’m curious as to the percentage of short sales that actually close escrow there. Here in Las Vegas, its only about 10%. Most end up in foreclosure.
From talking with other agents in the area there seem to be quite a few short sales closing but the actual statistic I am afraid I do not know. I closed one back in December that was 2 days away from going into foreclosure. With the banks taking longer to respond than a normal seller I wonder if that is a major contributing factor to short sales not closing.
I have heard that it takes at least 90 days to get a short sale closed and on top of that you have the buyer trying to get a loan for the property and that has become increasingly more difficult. Some agents I speak to say all they are doing right now are short sales and others don’t want to touch them.
I think communication and timing is far more critical with short sales than agents are used to dealing with. Have to be Johnny-on-the-Spot with them in my opinion.
When a buyer is buying at a trustee sale/auction. Is the winning bidder responsible for Homeowner’s Association Liens from past due dues? The CC&R’s for this community have left it open for current laws. What is the current laws on this issue. What type of liens is a buyer responsible for when they buy a foreclosure in Washington State?
As far as my knowledge goes, a buyer assumes all liens when buying a home at a auction. It is definitely important to research the title on any home you may be thinking about purchasing. It would be bad news to get stuck with a large lien that a previous owner accumulated.
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[...] entry was posted on Thursday, January 29th, 2009 at 11:02 pm and is filed under Uncategorized Short Sales, Distress Properties, Foreclosures and REOs – barnettassociates.net 01/29/2009 As the Snohomish County real estate market continues to correct [...]
[...] Short Sales, Distress Properties, Foreclosures and REOs [...]
[...] 11 residential homes were sold, 2 condos in January. A few of the smaller homes that sold were actually priced less that one of the condos. But the lowest price sold was a condo just under 100k with over 1000 sq. ft. to offer. None of these homes sold were a short sale or property in distress. [...]