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Buying Distressed Properties

What is a Foreclose Home?

Sometimes referred to as a REO property (or, real estate owned), a foreclosed property is owned by the bank because the owner defaulted on their mortgage payments and the house was reclaimed. Oftentimes, Fannie Mae and Freddie Mac (the quasi-governmental agencies that are responsible for backing the loans) are the owners of these foreclosed properties.

Purchasing a Foreclosed Home

Purchasing a foreclosed home is not the same as purchasing a market value home. When purchasing a foreclosed home, you’re working directly with the bank and trying to make an offer that the bank is going to approve.

Generally speaking, the process of purchasing a foreclosed home may take longer than a market value home. But the benefits are pretty incredible. You should be aware of the fact that foreclosure properties are sold "as is," which translates to the fact that limited repairs have been made.

Another caveat of purchasing a foreclosed home: If you decide to purchase a U.S. Department of Housing and Urban Development foreclosed property, the only way you can do that is through a licensed real estate broker.

Finally, getting financing for foreclosed properties can be more difficult than traditional housing. Generally, banks expect buyers to show up with lots of cash or at least a line of credit with your bank, upon which you can draw cashier’s checks.

What is a Short Sale?

A short sale occurs when the seller owes more on their mortgages than the current market value of their property. Once the seller receives an acceptable offer from a ready, willing and able buyer, negotiations and concessions must be made so that the lender will accept a sale at current market value as payment in full for the loan. Sometimes the homeowner in this situation may have the mortgage debt forgiven.

Purchasing a Short Sale

There may not be enough time to complete the short sale before the foreclosure. The buyer may cancel the sale prior to acceptance of terms by the lender based on the terms of the short sale addendum. There may be multiple lenders in which case they have to negotiate between them as to the dollar amounts each will receive.  Lender may accept buyer’s offer, but may also counter it after the current market value is determined after an appraisal of the property is completed. Lender’s counter could be more than the listing price. Seller may walk from accepted offer if the lender does not indemnify him from debt.  The short sale process could take from three to twelve months or more.