Of Short Sales, Foreclosures, and REO’s

Lots of people have been asking me about short sales, foreclosures & bank owned, or REO, properties. Here's the process and how it relates to you. When a seller needs to sell a house, but owes more on it (say $300,000) than he can sell it for (say, $250,000), he can sell it as a short sale, or sell it “short” of what he owes on it. That means that the seller is in charge of the sale, but the bank has to approve the sale, because they end up forgiving the difference between what the home sells for and what the seller owes on it. The seller lists it with an agent like me, who puts it in the MLS, and it gets sent to buyers like you who are potentially looking to buy a short sale
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When the bank gets tired of waiting for a short sale, they go ahead and foreclose on the property, and the property is sold by the trustee at a trustee's sale. This is where people can get some screaming deals...sometimes. They must have cash (or cashier's check), they must be present at the sale, and there are no inspection contingencies or disclosures. So you can imagine the type of buyer that would be attracted to this type of sale: one with cash, willing to take it as is, and looking for a great deal. Because of the potential for conflicts of interest, California law prohibits agents from representing buyers in a foreclosure sale.

But remember, the bank is owed $300,000. There's no way they're going to take $100,000 or $150,000. So they "buy it back", or don't accept any bids, & they now own the house. What do they do? They list it with an agent like me, who puts in on the MLS, and I send buyers who are interested in an REO property an e-mail that tells them all about it.

So, don't pay any money to outside companies for lists of foreclosure properties. If they are foreclosed on, they will be on the MLS and I can show them to you. The lists have homes that are in some state of foreclosure, which could mean almost anything. Perhaps the seller is 30 days late on a payment, or perhaps the seller is attempting a short sale. So you end up paying for a list that is populated with homes that aren't available to you as a buyer, or that are on the MLS anyway.