With the state of the current economy, there is a lot of attention being paid to the volume of foreclosures as well as shortsales. These are two different situations that are often confused. I thought it would be helpful to clarify what they are.
A foreclosure is a bank-owned property (also referred to as an REO property). The process of foreclosing on a delinquent home owner has been completed and the bank has the full title to the property and the right to sell that property. A quick look at foreclosures.com shows the very sobering statistic that in Lake Oswego right now there are 90 bank-owned properties, there are 17 properties in pre-foreclosure (behind in their house payments) and 587 properties scheduled for auction. When a home owner falls behind in his or her house payments, there is a multi-month process where the homeowner is notified of the delinquency. The final step of the forclosure is public auction where the mortgage holder takes the property back for the amount of money that is owed on it. Bear in mind that the process takes about nine months. Many of the people currently delinquent or scheduled for auction will find a way to either bring their payments up to date, renegoiate the terms of their loan, or sell the property. So not all of the homes currently delinquent will become bank owned. I’d also like to put these numbers in perspective. Lake Oswego has a population of about 35,000 people. With an average of 2.3 people per household, that is about 15,000 households. And with 694 households either in pre-foreclosure or already bank owned, that is about 5% of the households. Yep, that is sobering.
A shortsale is a house that has a market value of less than what is owed on it and the home owner is attempting to negotiate with their mortgage holder to take a discounted amount so that the property can be sold at current market value. In this instance, the sale of the home will require a third-party approval (the bank), and may or may not happen. The process to get this third party approval can take months (I worked with one that took 6 months), so if you are wanting a home that is a shortsale, be prepared to be patient and realize that the approval may or may not occur.
I am often asked how a buyer can find foreclosure and shortsale properties. The reality is that 99% of them are listed with Realtors and made available on the RMLS. People who are in distress and trying to sell their home as a shortsale hire Realtors. And banks with bank-owned properties hire Realtors to sell their inventory of foreclosures. You don’t need to buy a secret publication or pay for a special list. These properties are available to the public on the RMLS and any Realtor can gather information on them to help assist you with finding that great deal.
Having said that, I have two areas of caution. First, a foreclosure is a much better prospect for purchase if you have a time-line you are trying to accomplish. A foreclosed property that is listed for sale can be purchased within a normal transaction period of 30 to 60 days. Whereas a shortsale can take months and then may not occur at all. Second, when you buy a foreclosure it really is buyer beware. Banks make no representations about the condition of the property and often have their own sale agreements with extensive waivers to protect them from any future liablity. In both circumstances you should be able to make your offer subject to a home inspection.
OK, I have a third thought. Be aware that people who loose their homes are people in financial distress. They go through an extended period where they have no resources to make their house payment much less fix the leaky roof or remodel the ancient kitchen. So be prepared to see houses that are dirty and in need of repair. In addiiton, it is not uncommon for these houses to be stripped of appliances and fixtures. Not all foresclosures and shortsales are project properties, but many are.
So you are looking for the great deal? Sure, check out the foreclosures and the short sales, but don’t close your mind to the good old homeowner who needs to move and is motivated. These people will also often sell at great prices, close in a reasonable time frame, and maybe even vaccume the carpet and polish the granite on their way out. To make the most of the market, look at the entire market.
