So you want to know about real estate owned (REO) and short sales, do ya?
Let’s give it a go and try to get you familiar with the basics of these transactions. It won’t be pretty.
First and foremost, forget what you’ve heard from all the so-called experts; that would be your family and friends.
Second, if you do not buy real estate professionally, then you are looking at recycled properties (more on that later).
By now there has been so much written on these topics, that the opinions outweigh the facts. The truth is, in today’s real estate market, short sales & REOs are very commonplace and they are pretty straight forward transactions. That’s if you are prepared for what they require.
Want to know more about each? Keep reading.
A short sale is a transaction that occurs between 3 parties: (1) seller, (2) buyer, and (3) the seller’s lender(s).
In short (pun intended), the lender is willing to “sell” the property for less than the mortgage balance amount.
Good, so this is how it should work:
1) Home owner (seller) and lender have a serious conversation about the financial position of the home owner and their ability to pay current mortgage.
2) Lender attempts to mediate some financial pressure by offering incentives to home owner to continue paying current mortgage.
3) Once these incentives are not attainable, home owner and Lender agree to entertain a short sale.
4) Seller provides all required documentation to lender.
5) Lender provides all required guidelines to home owner.
6) Home owner, within lender guidelines, markets their property in an attempt to gain a purchase offer.
7) Once purchase offer is procured, said offer is presented to lender for review.
8) Lender will review terms of purchase offer, value the property, and make a final determination as to validity of purchase offer.
9) If lender agrees with the terms of the purchase offer, they will inform all parties of any closing conditions and if conditions are met/accepted, the property goes to closing.
it should be. But lots of stuff gets in the way, like…
In the real world each short sale transaction is different, complete with individual nuances (code word for fraud) that must be strategically navigated and expertly negotiated.
If you need help with a short sale drop us a line. In short ;) we’re really good at this.
An REO is an asset (property) that has been taken back by mortgager/lender through a foreclosure proceeding.
There are several steps to this procedure and the mortgagee (owner) has an opportunity to re-take/keep the property during the process.
The basic steps are:
1) Mortgagee (owner) fails to secure a short sale or loan modification.
2) Lender, having already proceeded with foreclosure during the short sale process, sets an auction date.
3) At auction, investors/mortgagee fail to meet/exceed lender’s bid price.
4) Lender “takes back” asset (REO).
5) Lender may “shop” asset(s) to institutional/bulk buyers.
6) If asset is not sold it may be listed with a realtor or an in-house sales team.
Step 6 is where most home buyers see the property listed as an REO, but by this time the property has been recycled/reviewed/rejected/purchased (think sloppy seconds) by a host of different parties (the pros that I mentioned earlier).
Couple of things to consider in an REO gig.
CASH IS KING… period. If you got it, flaunt it. Lenders love cash, as they don’t have to go through those nasty little things known as appraisals.
Editorial Comment: Now YOU try to finance something without a “lenders appraisal” and see what they have to say about appraisals (what’s good for the goose is definitely not good for the gander).
If the property shows any value, the 3 Bs (Bueno, Bonito y Barato), prepare for a bidding war that often takes the property above current market value.
While price may look attractive, the condition of asset(s) outweighs the cost of purchasing/renovating from a hard cash standpoint and asset(s) may have title issues that may not be addressed by lender (buyer beware)
So what’s it mean to the average Joe?
REO’s are just like everything else in life, you get what you pay for.
Or as we like to call them… “shit kickers”.
Have any other questions? Contact us.