Buying a Foreclosed Property: REO vs Short Sale

The Opportunities of a Foreclosed Property

Welcome back to Realtor Ramy’s San Mateo Real Estate Blog! Let’s get right into it…

First off, what is a foreclosure? Here’s the definition per Google: “The action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.” Naturally, this can create an opportunity for buyers to get something of a deal. However, it’s not always so simple. Homes available as a result of foreclosure often come with risks we don’t see in traditional sales. This is because of the certain exemptions of what must be disclosed by the seller in a foreclosure situation. Homebuyers and investors alike will come across homes in different stages of being distressed and in foreclosure. Something most buyers will come across when searching the market for a home, are REO’s and Short Sales. It is imperative to know the difference.

Short Sale: Also known as “pre-foreclosure”, this is a home that is trying to avoid all-out foreclosure or bankruptcy proceedings. This takes place when the outstanding balance of the mortgagor is more than what the home can be sold for. The lender agrees to accept a discounted payoff to release the lien in hopes of avoiding loss. Sometimes, in a short sale, the lender may want the buyer to pay the difference between the discounted payoff and the home’s value. A short-sale has not yet gone to a foreclosure auction.

REO: An REO stands for “Real Estate Owned”, in this case, by the lender (usually a bank), after the inability to be sold at the foreclosure auction. The bank will try to sell the property by removing some of the liens and expenses on the home. They will hire agent(s) to get the home sold. The escrow process could take a bit longer to close for buyers purchasing an REO home, as the bank sets the procedures and pace for selling the home to their liking.

The concept of Short Sales and REO’s is really not so complicated. An experienced agent can make the process of purchasing these homes not only much easier, but also a more financially feasible option for the buyer.

So there you have it, Realtor Ramy’s blog! If you or anyone you know is interested in finding a deal on a home in foreclosure in the San Mateo or San Francisco area, give Ramy Sghayer, C21 Realtor® a call at (650)691-5189 or shoot an email over to ramy.sghayer@century21.com. Cheers!