Understanding Short Sales, Foreclosures & REO’s
Proceed with Caution
When considering a purchase or sale of real estate that could be categorized as a short sale, foreclosure or REO (Real Estate Owned) property, consumers are urged to consult professionals. These are legal matters that can have lasting effect on credit, taxes, and many other personal matters. All are encouraged to consult their Attorney, HUD homeowner consulting center, tax professional, and other appropriate professional agencies. One of our highly skilled and trained Connect agents is also ready and waiting to assist.
ForeclosureWhen a borrower stops making mortgage payments to their lender, the loan is in "default". The lender initiates legal steps to sell the property to satisfy the debt. This is called foreclosure, and each step of the procedure made by the bank is subject to state and federal law. |
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Short Sale
Borrowers who are facing foreclosure may ask their lender to accept a discounted payoff on their loan. This is called a “short sale” or “short payoff.” It allows the borrower to avoid a foreclosure action, and may offer the lender an expedited and less costly resolution for the delinquency. A short sale allows the borrower to maintain a better overall credit record than with a foreclosure. It also allows time for the homeowner to relocate on a more convenient timetable instead of facing eviction and possibly a deficiency judgment down the road.
For the consumer, negotiating a short sale with their lender may seem a daunting task, particularly at a stressful time when foreclosure looms. Most lenders have specific criteria in considering a short sale as it relates to the borrower’s ability to repay the debt. Some lenders will consider a short sale only if the borrower can produce evidence of hardship. A property that is distressed or requires extensive repairs may also qualify. If the lender were to foreclose on this type of property, it would have to pay for all of the repairs necessary to sell the property. A short sale may represent a more cost-effective way to pay off the loan.
If the home owner qualifies for a short sale, with an agreed amount, then typically the foreclosure will not proceed or will be delayed if there is substantial progress in the sale of the property.
REO (Real Estate Owned) Property
In the unfortunate event that a homeowner does not qualify with their lender for a short sale, the property goes into foreclosure and is eventually scheduled to be sold through a trustee’s sale or is auctioned. When the property goes back to the lender it is called an REO (Real Estate Owned) property. The lender then assigns that property to an Asset Property Manager along with other properties that have gone through foreclosure.
The asset manager then assigns multiple properties to listing agents in a geographical area who have met the lenders criteria. These agents are known as REO specialists. We have several REO teams in our Connect network who also serve as expert council to our buyer’s agents.
It is important for both the buyer and seller to understand that the current market conditions can alter normal procedures. Many of the service providers such as beneficiaries, escrow, title, and lenders that process these transactions have an inordinate amount of files to deal with that often cause delays and other related challenges. Patience is greatly appreciated!