Short sale, foreclosure, bank owned? What does it all mean?

With all the media coverage on bank owned, foreclosed and short sale homes, real estate can seem like a scary business. But what exactly do all those varying degrees of scary mean? Each type of property sale and transfer of ownership is based on different circumstances and means different things for the lender, the seller and the buyer.

The short sale of a property is intended to prevent foreclosure and bank ownership in the first place. A short sale occurs because the amount the owner owes on the house outweighs the house's value. This can happen for several reasons. If the owner has defaulted on the loan and can no longer make payments, he may wish to make a short sale to avoid foreclosure.

Sometimes short sales occur even though the owner is current on his payments; if the home has decreased in value, he may still owe more for the home than it's currently worth. The owner has to work with the lender, and the lender must approve the short sale, because it's the lender who will be losing money. Sometimes, lenders will negotiate to reduce the amount owed or make concessions. Other times, they will hold the owner responsible regardless.

Short sales are often priced lower than comparable sales, and buyers look to short sales for good deals. However, short sales can take months to close, because offers are all contingent on lender approval, not just seller approval. For this same reason, many short sales never close at all, because lenders want to lose the least money possible. Sometimes short sales allow lenders to lose less money than a foreclosure, however, because of the fees associated with foreclosure. Short sales are favorable to borrowers because they don't impact credit scores in the same way foreclosures do, and although they take months to close, they are usually faster and cheaper than foreclosures.

With my experience as a real estate professional, I'll help you sort through the maze of distressed properties to find the diamond in the rough. Give me a call today.