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What Kind of Foreclosure Home Is Right For You?

There are two kinds of foreclosure properties:

      Pre-Foreclosure and REO                          

Pre-Foreclosure properties are still owned and controlled by the homeowners (resident or investor).  But they are behind on their mortgage payments and their mortgage company has started the foreclosure process.  If the homeowner is not able to get caught up and bring the mortgage current, then the foreclosure process will play itself out.  At the end of the foreclosure process the lender will own the property and the homeowner will be out.

REO stands for “real estate owned” and it’s a term used by lenders to designate the properties they have acquired through foreclosure.  In other words, the complete foreclosure process has taken place and the homeowner who was not making their mortgage payments is out and gone and now the lender owns the property.

If a pre-foreclosure home is for sale, then it’s the homeowner who has it for sale.  Buying a home that’s in Pre-Foreclosure can be a good deal, but it is usually a very lengthy process.  Usually the homeowner owes more than what they can get for the home.  In that case they must request their lender to take less than what is owed on the home.  This is called a Short Sale.  Short Sales require a lot of work on everybody’s part, lots of documents, lots of time, and lots of patience.

When the homeowner gets an offer on their home, they have to get an approval from their lender to sell the home at that price.  Most lenders will approve a short sale that is within 80-90% of the home's fair market value.

The Best Deals are on the REO homes.  If an REO home is for sale, then it’s being sold by the lender through their own real estate division.  They usually hire a local Realtor to list the home on the MLS.  The lender definitely wants to get rid of the property as soon as possible and lately I've seen some pretty good deals - lenders are starting to unload some homes at some very low prices.

Buying an REO property is like buying any other property – check it out, make an offer, negotiate and come to an agreement.  But it’s not quite the same as buying direct from a homeowner.  Since an REO property is owned by a corporation, there's a process and you're going to have to follow that process - that means jumping through some hoops just for the seller.  It's obnoxious, it's a pain, but if you'll allow yourself to put up with the nonsense you'll probably get a good deal on a house.

Both Pre-Foreclosure and REO homes typically need a lot of fix-up work and updating to make them livable.  You'll probably want to consider an FHA 203(K) Streamlined loan.  It's the best program for buying a foreclosed home and coming up with the money to fix it up.

There are definitley some great deals in Foreclosure homes.  Give me a call or Email me and let's get out there and find one for You!