Foreclosed, Foreclosure, In Foreclosure, Bank Owned, REO…..
WHAT DOES IT ALL MEAN? – A Quick Guide
As an active Real Estate agent with a myriad of listing types I field dozens and dozens of phone calls each day from buyers and sellers. The level of confusion out there is staggering! Starting in 2007 when we began to experience a record number of mortgage defaults and with that change came a whole new vocabulary to learn. As a buyer you need to understand what type of property you are looking at.
Know Your Terminology: to try and clarify this issue I submit the following guideline to terms for the buyer on the open market. These are the commonly used terms, at least in the Southern California Market. If you know of another term in your are best check it out with a local trusted resource.
Short Sale: Seller is still in control of the property. Often still living in it. They are looking for an offer so that they can try to get the bank to accept that and release them from the balance of the loan. At any point during your attempt to purchase the property in this way it could fall into foreclosure. Your agent should stay on top of the sellers situation and watch for the filing of any default notices.
In Foreclosure: This is the period after the bank has issued the notice of default and the owner may or may not still be in the property. In California this is a 120 day process from notice of default* to foreclosed. This is the biggest limbo period. Owners may work out something with the bank, have a relative rescue them, ignore everything and let the house go to foreclosure, do a deed in lieu (basically cooperate with handing the house back to the bank to avoid foreclosure) – essentially anything. Different rules apply depending on what type of mortgage the homeowner had. As a buyer this is a risky time to be dealing with the owner. They are under a great deal of stress and truthfully anything can happen. In California there are also laws about purchasing any equity the owner may have if you are an investor and not buying it as a primary residence. So caution is the rule of the day.
Foreclosed: This is a home that the bank or an investor now owns. They have completed the foreclosure and they are now the legal owner. The bank typically hires a realtor to list the home and get it sold. However, you may see the home go to another investor for sale or the house may be put in an auction.
Bank owned – REO: Two terms that mean essentially the same thing. The bank or some lender (sometimes a private party) owns the property.
The fastest way to purchase a property is in this stage: once the bank has foreclosed and they are the owner of record. It may take a little while to get it on the open market but once it is you can typically proceed with a purchase pretty quickly.
Auctions: Many people ask about buying a foreclosure on the courthouse steps. This is still done. As the final step of the foreclosure the bank schedules the auction. Lists are available online or through title companies. I can’t imagine buying a property this way unless you are very certain that the value is there and have some idea of the condition of the property. Some properties receive no bids and the bank sends their representative to the sale and they buy the property back for the amount they foreclosed on – those properties typically come back on the market with a real estate agent.
There are also several large private companies working in a bunch of loose partnerships with the banks. They will get a block of properties and schedule an auction – either on line or at a hotel ballroom or convention center. Usually, they have a preview weekend to go look at the properties and then hold the auction. Be wary of these as often times there is a “Buyer Premium” that can be any amount but typically I see them around $5,000. If you do not know values in the neighborhoods you are buying the chance of overpaying is very high. I have personally seen properties in my market go to auction and sell for more than they had been listed for the previous month when no savvy local buyer would pay that much.
* The notice of default is the official notice to the homeowner that foreclosure proceedings have begun
To Read more on Short Sales please visit our Short Sale Page