THE TRUTH ABOUT SHORT-SALES and REO'S (Bank-Owned Properties)

There is a drastic difference between Short-Sales (also known as pre-foreclosures) and REO's (Real Estate Owned-aka properties now owned by the bank acquired through the foreclosure process).

Short Sales

A short sale or pre-foreclosure occurs when a homeowner has been delinquent with their mortgage payments or feel they may be in the near future.

If the owner is delinquent and has received several 'nasty-grams' the lender - and the owner has continuing delinquencies - the bank will file a 'Lis Pendens' with the county court and the current homeowner will have a certain timeframe to bring their home current (usually 30-90 days) or the lender will foreclose on the property. During the timeframe between Lis Pendens and actual foreclosure - the home will usually be offered for sale.

Any properties listed as a 'short sale' will require 3rd party approval (the bank holding the mortgage is the 3rd party). This means any purchase offers on that particular property must not only be approved by the current homeowner, but the lender as well.

When a property is listed as a 'short sale' - the listed price and subsequently the offered price will be 'short' of what is currently owed to the lender. Depending on how the contract-offer is written, the buyer will receive clear title - free of any liens or encumbrances. The difference between what is currently owed on the property and what the home actually sells for will be between the lender and the homeowner who defaulted on the loan.

A short sale can be a benefit to a buyer in the fact that they will get a home substantially under market value.

Some Drawbacks that may be experienced with a Short-Sale:

• Most often than not - a home in short sale position will be in need of repair. There have been homes where the homeowner has removed toilets, sinks, light fixtures, appliances - and even an $800k home where the kitchen cabinets were removed as well as the 2 interior central air conditioning units. If there is a pool in the home - it will most assuredly be green - and the lawn very brown! The need to repaint and re-carpet will most always need to be done
• Short sale is not as easy to procure as the general public seems to think. If there are 2 mortgages on the property with 2 different lending institutions - the 1st lien holder is known as the primary and the 2nd - the secondary. During the short sale process - the secondary lien holder will fight for their life trying to get at least a little - so it is very difficult for a short sale accepted when more than the primary is involved.
• Short-Sales can take up to a year - and there's no guarantee an offer will result in a purchase. 23% OF ALL SHORT SALE CONTRACTS NATIONWIDE ACTUALLY CLOSE! 77% NEVER CLOSE!
• In most cases - the list price has not been approved by the bank - and sometimes the price the bank will approve may be higher than the list price. There is no guarantee you will acquire a short sale at or below the list price.

We strongly encourage you to stay away from short-sales - unless favorable conditions apply - but even if favorable conditions apply - lengthy processing times may still be experienced.

Some favorable short-sale conditions are:

• The bank has already approved a short sale - and the listing price has been approved by the bank.
• Sellers have already completed the necessary documents required for a short-sale and provided them to the bank.
• No more than one loan is owed on the property, etc.

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REO's (BANK-OWNED PROPERTIES):

Once a bank takes ownership of the home through the foreclosure process - the property is known as an REO - Real Estate Owned - the process for purchase then becomes much simpler. You will usually get a response regarding your offer within 5 - 7 business days as opposed to the lengthy time for short-sale. With all REO properties - the bank has a bottom line number that they will accept.

Some REO pitfalls you may experience are:

• Brown Lawns
• Green Pools
• Need for interior care (paint, carpet, holes in walls, etc.)
• Missing Appliances
• Missing A/C units
• Missing Pool Equipment
• Cabinetry Removed
• Lighting Fixtures/Ceiling Fans, etc. Removed
• Tired Roofs
• Water Damage - possible mold

Note: If you are purchasing a home utilizing a mortgage - some mortgages have certain guidelines regarding the condition of the home that must be met. Some REO's may not qualify for a mortgage. Always check with your lender for your specific mortgage criteria.

AS WITH ALL PROPERTY PURCHASES - THE IMPORTANCE OF HOME INSPECTIONS ARE CRITICAL. HOME INSPECTORS ARE N O T REQUIRED TO BE LICENSED IN THE STATE OF FLORIDA! BE SURE YOU USE THE SERVICES OF REPUTABLE HOME INSPECTORS - MAKE SURE THEY ARE STATE LICENSED!

Some Advantages to purchasing REO homes:

• Can be purchased for under-market value
• Opportunity to build equity
• More home for the money

Some Drawbacks to purchasing an REO:

• 'Bidding-Wars' may occur - thus home selling above list price.
• Compete against Cash Buyers - Financed offers have a hard time winning over a cash buyer.
• Some REO's may not qualify for financing

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IMPORTANT THINGS TO REMEMBER-FOR ALL TYPES OF HOME PURCHASES

• AS WITH ALL PROPERTY PURCHASES - YOU MUST BE PRE-QUALIFIED IF UTILIZING A MORTGAGE
• ALWAYS GET PRE-APPROVED BY A LENDER PRIOR TO YOUR HOME SEARCH.
• ALWAYS UTILIZE A LICENSED HOME INSPECTOR.
• A SALES CONTRACT IS A LEGAL DOCUMENT - BE SURE YOU OF WHAT YOU'RE SIGNING ..
  Especially with Short-Sales and REO's - to ensure you do not assume any liabilities or liens.
• " UTILIZE THE SERVICES OF AN EXPERIENCED REAL ESTATE PROFESSIONAL TO HELP EDUCATE AND GUIDE YOU THROUGH YOUR HOME PURCHASE. RULES AND REGULATIONS ARE CONSTANTLY CHANGING! MISTAKES CAN BE VERY COSTLY!