Foreclosure properties, or Real Estate Owned (REOs) as they are commonly known, are properties that have been taken back by the lender due to defaults on the underlying loans. Foreclosures often represent great bargains in the real estate market, but due to the record number of foreclosure homes in the system, many are in very poor condition. Buyers should pay extra careful attention when preparing to bid on these properties, and inspections by a qualified home inspection company are a must!
Many home buyers are uneasy at the thought of purchasing a foreclosure property, since they don't want to end up pushing a family that has fallen on hard times out on the street. However, these properties are almost always vacant, since the lender has already taken back possession of the property. And in most cases, neighbors of these homes will be really glad to see a new owner moving in, so the home can be brought back into shape and be properly maintained. Therefore, buying foreclosures not only represents an opportunity for a good deal, but it's also a very effective means of improving the community you'll be living in for years to come!
Many home buyers are often confused by the distinction between foreclosures and short sales. As mentioned above, foreclosures are properties that have already been taken back a lender. On the other hand, short sales refer to properties where the present market value of the home is less than the outstanding debt secured by that home. In such cases, where a property owner owes more than their home is worth, but still needs to sell for whatever reason, the seller has two choices. They can either sell the property for less than they currently owe and show up to the closing with cash for the difference (highly unlikely), or they can attempt to negotiate approval for a short sale from the lender, in which case the property is sold for the approved amount and the lender takes a loss on the remaining balance (the seller will typically have to pay income tax on the forgiven portion of their debt).
Short sales are tricky by nature and depending on several factors, such as the lender involved (as well as the number of lenders in cases where there is a 1st, 2nd, and sometimes 3rd mortgage in place) can take anywhere from a month to over a year to negotiate and finalize. Therefore, home buyers that have an urgent need to secure a new property quickly may shy away from trying to purchase a short sale, especially where the lender has not pre-approved a price.