06 Sep Distressed Properties 101
There are many types of properties in the market that one can benefit from, especially within the distressed properties market. This is a major market area and an umbrella to many other significant types of common properties that move quickly: short sale, foreclosure, real-estate owned or bank owned, and HUD homes. Each of these various types of properties have their own ways of being dealt with but they are very attractive to investors who want to make a great deal of profit. Due to the high motivation of the sellers who handle these types of properties, many result in a pricing below the market value and very quickly. Many people don’t understand the difference between these types of properties but we are going to make this as cut and dry as possible.
First, let’s start with Foreclosure properties. These properties are frequently spoken of, especially after they were at such high selling rates during the last market setback. Foreclosure is when the lender of the home takes possession of the home due to the lack of payment as promised by the owner in the mortgage agreement. The time limit as to when the property becomes the lenders property varies depending on the arrangements agreed upon within the mortgage agreement. Once the property is reclaimed, the foreclosure process begins. This includes occupant evacuation of the home, and the selling of the home by the lender on the market, usually done through the auction process.
Short Sales have become much more frequent lately and with great reason. With many lenders trying get rid of foreclosed properties quickly, and/or home owners trying to get out of a home before accruing extra fees, many opt for the short sale process. This process is very helpful to homeowners who owe more on their mortgage than the current worth of the home in the market. Due to the homeowner or seller asking the bank to accept less than owed, this process can become lengthy one as well. The bank must give the final approval in order to sell the property as a short sale. This can turn into a rather complicated real estate transaction, but again, it depends on the value approved by the lender and the bank procedures needed to proceed. Many times short sales can be made into quicker transactions when the bank use their relationship with the real estate investors who have proven trustworthy. Some banks have lists of such providers in which they have trusted relationships who are able to help the owners find quicker solutions.
Real-Estate Owned (REO), or Bank Owned are both describing properties which are owned by the banks. As mentioned above, in the foreclosure section, once a property is put into foreclosure status the banks then try to sell the property within the auction markets. If the property does not sell during the auction, the property’s then considered bank owned, or REO. The terms bank owned, REO, and foreclosure all are interchangeable terms so this can be somewhat confusing. Usually REO’s, and/or bank owned properties are sold by real-estate agents in the “as-is” conditions with all repairs falling on the buying party.
Lastly, let’s talk about HUD homes. Over the past couple of years there have been lots of advertising for HUD homes, but what are they really? A HUD home is a term describing homes that were at one point insured by the Federal Housing Administration. The FHA, is a part of the U.S. Department of Housing and Urban Housing. These properties that were insured meaning that the balance that the borrower owed would be paid off by the lender and the lender would then take responsibility for the property. Once the Property becomes a HUD home, it’s offered for sale and processed just as a bank owned or REO property.
We hope this has helped to clarify the differences, what little differences there are, between the types of distressed properties. Although many of the characteristics overlap, they are all considered to be separate actions. If you have any question please feel free to contact us on our contact us page and we will gladly answer your questions.