So you came across a property on Zillow or Trulia and it seems like an amazing deal! You find out that it’s either a short sale, a foreclosure, or a REO.

What are these and what do they mean to you as a buyer?

I’m going to break these three stages down for you in the order in which they occur. Experience and patience are key when purchasing these types of properties and it’s for that reason that I personally DO NOT RECOMMEND these types of purchases for first time homebuyers.

1. What is a Short Sale?

A short sale typically occurs when the property owner owes more on the mortgage than the market value of the property itself. In this case, the seller is hoping to find a buyer to avoid foreclosure and is asking the bank to accept less than what is owed on the loan.

The biggest misconception that the average consumer has about purchasing a short sale is not realizing how long it actually takes! Don’t let the name fool you, short sales may take between 6-12 months to close. This is NOT a good option for those looking to move quickly and more importantly, these purchases do not always equate to a good deal.

There is a lot of, “red tape” involved in the purchase of a short sale. It’s not uncommon that a seller will accept your offer and while you’re waiting (sometimes up to 12 months), the lender will step in and reject your offer in hopes of obtaining more money via the foreclosure bidding process.

2. What is a Foreclosure? (Courthouse Sheriff’s Sale)

A foreclosure is when a property lender (often the bank) has taken back the ownership of the property due to lack of payment on the mortgage.

Once the legal process of the pre-foreclosure stage has been carried out, an auction will occur at the courthouse in the county the property is located in. This is known as a “sheriff’s sale”. Bidding starts at the amount of money owed on the property. For example, if the money owed on the foreclosed property is $100,000, then the starting bid on that property will be $100,000. If there are no bids, the bank will re-claim ownership of the property, making it an REO.

You will most likely not be able to see the inside of these properties before bidding, thus you’ll be bidding blindly. If you are the winning bidder, you will be required to pay any liens associated with the property. In New Jersey, you’ll need a certified check of at least 20% of the purchasing price on the day of the auction and then you’ll be required to pay the remaining balance within 30 days.

I work with a lot of investors who are purchasing these types of properties as investment opportunities. They are often taking advantage of low prices in developing areas or they’re flipping the properties (remodeling and reconstructing) in order to re-introduce them to the market for a profit. They are usually purchasing these properties completely in cash and are well-versed in the bidding process. What this means for you is, if the price is too good to be true, everyone knows it and the investors will surely be there to engage in a competitive bidding war.

Purchasing properties this way is a bit advanced and definitely more risky, therefore I do not recommend it for first-time homebuyers.

NOTE: Some of these properties can also be bid on online. With these types of auctions, there is a 5% buyers premium added on.

3. What is an REO? (Post-foreclosure phase)

Real Estate Owned (REO) properties are homes that were not bid on during the sheriff’s sale, and became re-claimed by the bank.

After the sale at the courthouse, the tenants will be evicted and then the property will be listed for sale. At this point, the property is essentially like any other property on the market. In these cases, CASH IS KING.

Those who are looking to purchase an REO property may have a hard time finding financing because lenders are typically reluctant to provide loans for properties in poor condition. If your REO requires extensive repairs, the bank will likely require a higher down payment. There are some lenders that will offer mortgages that include money for repairs such as FHA 203k loans.

In summary, the process of purchasing REO properties is fairly similar to the purchase of any other property, but requires a lot more attention to detail and preparedness - especially when it comes to your financing.

5 Important Takeaways

Foreclosures are typically sold “as-is.” Some of these properties are in very poor condition and you may get a great deal on the initial purchase, but end up paying a lot of money in repairs.
You will be responsible for any liens (money owed) on the property you purchase.
Often times, FHA or VA loans will not qualify in the purchasing of these properties due to the extensive repair work required.
In the fast-moving market of New Jersey foreclosures, offers made in cash are king. This makes it especially difficult for anyone attempting to purchase these properties with a mortgage.
Patience is required. Short-Sales are typically reviewed by several individuals and entities, which means it may take weeks, or even months, to receive a response.

Contact me to start your home search today!

Short Sales, Foreclosures, REOs - Oh My!

1. What is a Short Sale?

2. What is a Foreclosure? (Courthouse Sheriff’s Sale)

3. What is an REO? (Post-foreclosure phase)

5 Important Takeaways

Foreclosures are typically sold “as-is.” Some of these properties are in very poor condition and you may get a great deal on the initial purchase, but end up paying a lot of money in repairs.

You will be responsible for any liens (money owed) on the property you purchase.

Often times, FHA or VA loans will not qualify in the purchasing of these properties due to the extensive repair work required.

In the fast-moving market of New Jersey foreclosures, offers made in cash are king. This makes it especially difficult for anyone attempting to purchase these properties with a mortgage.

Patience is required. Short-Sales are typically reviewed by several individuals and entities, which means it may take weeks, or even months, to receive a response.