What are the Differences Among Foreclosures, Bank Owned and Short Sale Properties

What are the differences among Foreclosures, Bank Owned and Short Sale properties you may see listed for sale? The differences are substantial and you should not underestimate the effort involved in bying a home under any of these processes.

Since I am frequently asked by prospective buyers the difference among these three different approaches to buying a home, I'll try here to answer that question as briefly as possible here.

Foreclosure Properties are property sold via an auction process. A foreclosure auction sale begins with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs associated with the foreclosure process. To bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still residing in the property. There may also be other liens against the property. Since what is owed to the mortgage holder is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned, REO or bank-owned property.

Bank Owned Properties are properties that have already gone through the foreclosure process without a successful bid being received and are now owned solely by the bank or other mortgage holder. The bank will handle the eviction of any people living in the property, if necessary, they and may or may not do any repairs. They most generally want to sell the property "as is" although that may be negotiable. The bank will also negotiate with the appropriate authorities to remove any tax liens and pay off any homeowner's association fees that are due. As the buyer of a bank-owned property, the buyer will receive a title insurance policy and the opportunity to investigate the property. The buyer's offer will be countered by the bank and it is typical for the buyer to re-counter that counteroffer.

Short Sales Properties are those homes that are still legally owned by the homeowner but the property is being listed for sale at a price that is less than the amount owed on the mortgage. Since both the seller and the mortgage holder are involved, once the seller accepts an offer, it must be submitted to the mortgage holder, who will frequently attempt to get a higher price before allowing the deal can be consummated. A home or condominium offered as a short sale may or may not already be in the foreclosure process. Short sale properties are generally sold "as is" with no allowance for inspections. The buyer may do any inspections they wish at their own expense but it is unlikely that the bank will agree to cover the cost of any deficiencies found during the inspection.

If the bank believes it can receive a higher price by taking the property through the foreclosure process, they will hold out for a higher price than the advertised short sale price and closer to what they believe to be the property's market value. Lenders generally accept short sales only when the price of the home is close to its market value. It is generally not the case that a buyer gets a significantly better deal on a short sale than on a typical purchase transaction, And, this process can take 90 - 120 days or even more.

The assistance of a professional Tampa Bay Realtor knowledgeable in the purchase of "distressed properties" will make buying a home as a short sale, at a foreclosure auction or as a bank-owned property a simpler, although surely not a trivial process. You should not attempt to procure a home by any of these three routes without the assistance of an experienced and knowledgeable professional like Cheryl Stimac, a Tampa Bay real estate expert trained and experienced at executing home purchases under these processes. Cheryl has earned the Certified Distressed Property Expert (CDPE) designation, having completed extensive training in foreclosure avoidance and short sales.

You may also want to read my earlier post on Foreclosures and Short Sales