Short sales, pre-foreclosures, Deed in Lieu of foreclosures, REO’s…
We all hear the terms in from Realtors, Banks, Emails, advertizing, T.V. you name the source and somewhere in there they are probably talking about the “housing market” the “housing Crash”, bank “bail-outs” and one or many of the terms mentioned above. We wanted to take a little time to quickly explain what those real estate terms mean.
What is a Short Sale?
A short sale is a home being sold for less than the bank is owed. Banks are sometimes willing to sell for less than they are owed because they are not in the business of owning property and would rather get the loan and property off of their books. There is a special approval process which can make the process of buying a short sale long and not guaranteed to go through.
What is a Pre-Foreclosure?
This is a generic term for a home where the owner has fallen behind on mortgage payments. The home may or may not be in the formal foreclosure process. It can take four or more months of late payments for the foreclosure process to begin. If you buy a home in this state, the seller will end up paying up the delinquent payments at closing, provided that there are enough proceeds from the sale.
What is a Foreclosure?
The primary method of foreclosure in California involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action. When the deed of trust is initially signed, it will usually contain a provision called a power of sale clause, which upon default allows a trustee to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of an auction. Unlike many states where trustees are appointed by lenders, title companies primarily serve as trustees managing foreclosure sales in California. California has a requirement known as the one-action rule. If a foreclosure is completed by non-judicial means, a second action to recover a deficiency judgment is not permitted. Using a judicial foreclosure, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than non-judicial foreclosure, it is rarely used. California non-judicial remedies have stringent notice requirements.
Property Auction/Trustee Sale
As a buyer, you can purchase properties at both trustee sales and sheriff sales. However, this process is NOT for novices. While you may find great deals, you have little or no time to actually evaluate the property that you are buying. You could be at risk of various problems that are normally investigated by Realtors and Title Professionals in normal sales transactions. These problems can be serious such as: Title problems, Superior loan pay offs, IRS liens, utility liens, HOA fees, tenants or former owners still occupying the property, pest and/or structural problems .It also frequently requires cash payment for the entire price of the property. If you pursue an auction, be sure to engage professionals to help guide you through the process.
Deed-in-Lieu of Foreclosure
Sometimes mortgage companies allow a homeowner to simply surrender their deed to the lender, freeing them from both the mortgage payments and home ownership without having to go through the actual foreclosure process. These properties become “bank-owned”.
What is an REO?
REO is a abbreviation for Real Estate Owned properties in other words it is Bank-Owned Property. Property that has been foreclosed on or the lender accepted a deed-in-lieu of foreclosure and it does not sell at auction has now become bank owned property. It is then listed by a Realtor who is hired by the bank to market and sell the property. To sell the house as quickly as possible the lender will remove any liens on title, and clear any other issues that may slow down the sale of the property during escrow. This does not mean they will make repairs or any improvements on the property. Generally, lenders are very motivated to sell these properties, as they are in the business of lending money, not owning real estate. When buying a bank-owned property, there are often bureaucratic hoops to jump through with the bank, a real estate agent who has facilitated REO sales can help you navigate this bureaucracy and prevent further delays.