A scary business (originally posted Halloween, 2017)

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Buying Distressed Properties

Buyers often hear about bargains from short sales, bank owned properties, or foreclosure properties, but this can all seem like a scary business to be in considering. 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. A short sale occurs because the amount the owner owes on the house is more than the value of the house. 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 as little money as possible.

Foreclosures occur when owners have defaulted on the loan by missing multiple payments. The bank usually sets the date of foreclosure about three months after it records a Notice of Default (NOD) on the loan. This is also the date that the bank can legally evict the owner. The bank publishes the notice of the foreclosure auction. Five days before the auction, the owner can no longer reinstate the loan. If the house is sold to a bidder at the foreclosure auction, the bidder can have the owner evicted within 24 hours.

If the house does not sell at the auction, the property becomes bank owned. The bank lists the house for sale just like the owner of any other property. Because banks only need to collect the remaining debt, the prices of such property can be very low. This is not always the case, however.

Short sales, foreclosures, and bank-owned homes are all potential bargains for the buyer, but the experience can be quite stressful and can take longer than a traditional home sale. It is good to know as much as you can before venturing into this type of transaction.

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