Talk about confusion! The television, radio and newspapers all have daily news about our economy and the foreclosure mess. While it's bad for those American's who have gotten themselves into a position to lose their home (some by no fault of their own), it's a good thing for anyone looking to buy a home right now. But the big question I hear all the time is, "what's the difference between them"?
In Arizona, there are literally thousands of Short Sales, REO's and Auction Properties. To help you understand the difference, I'm going to explain it, in layman’s terms, for you.
Short Sale – (Also known as a “pre-foreclosure”) In a nutshell, this is when the home is being sold for less than is owed to the bank. After the offer is signed and accepted by the homeowner, the bank must approve it which can take anywhere from 6 weeks to 6 months. A lot depends on how many lenders are involved. If there is a first and second mortgage on the property, both lenders must agree upon the price and terms. It is a lengthy process and there are no guarantees that the bank will accept your offer, but many times they are worth the wait.
Auction - These properties are often sold on the courthouse steps or in a lawyer’s office. If you are the successful bidder then you must give the bank's representative at cashier’s check for $10,000 and have the balance of the bid delivered by the next day. If you don't deliver all of the money the next day you will lose your deposit. These properties are often bid on "sight-unseen". They also frequently have tax bills owed on them and sometimes have other "clouds" on the title that will be your responsibility to clear up. Another problem with this type of sale is when you take ownership of the property; it often comes with the previous owner still living there. If you can't work something amicable with them, you'll have to have to get the Sheriff involved to evict them.
REO (Real Estate Owned by the Bank) Properties - These properties have already gone through the foreclosure process. They are no longer occupied. These homes are often an excellent buy, but you have to look out for a lot of things. One, the bank generally prices them according to how much was owed on the house, not necessarily market value. The turn-around time can be anywhere from 1 day to a week (before you hear back on your offer). You are often given a "verbal" approval or counter offer. Once all parties agree, the bank will have you sign "their" contract, which supersedes any contract that was previously written by an agent. You must sign a document that states you will accept the property in "As-Is" condition and waive any seller's property disclosures. No warranties are made by the bank, so it is advisable to have a home inspection done on the property during the 10-day inspection period (which starts the day you receive the verbal acceptance from the bank).
3rd Party Auctions - These are different than bank actions on the courthouse steps. Frequently, banks will have a large "foreclosure auction" with homes that have reverted back to them if they didn't sell. They are advertised in newspapers and publications so you are able to view them prior to the auction. Third party companies are employed to have an auction where there is a minimum bid and likely, a "reserve". This means that if the reserve amount has not been met, the property will not be sold and will likely be listed as an REO property.
I have a lot of experience in dealing with both pre-foreclosure and foreclosed homes. If you have any questions, feel free to call me on my toll free number: 800-985-3672.
Colleen Lynch is the Broker for CLA Realty, LLC and has been practicing real estate in Arizona since 1995. She specializes in Residential Real Estate and is certified to sell pre-foreclosure and foreclosure homes.
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