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SHORT SALES, REO'S, and BANK AUCTIONS - A Short Summary!

NATURE OF DISTRESSED PROPERTY PURCHASE CAN DIFFER DEPENDING ON THEIR STAGE IN THE FORECLOSURE PROCESS!

We at Dean's Team Chicago get questions all the time on the availability of Foreclosed Properties.  Based on what they see in the media, many prospective home buyers and investors feel they can identify great new homes, for pennies on the dollar.

Not necessarily, and not easily!

Books and Complete DVD Courses have been created explaining the Short Sale, REO, and Auction Purchase process - but here is a quick summary.

SHORT SALE PROPERTIES become available as the current owner of the property, fearing impending foreclosure due to actually missed mortgage payments, or the fear of missing payments in the future, attempts to sell his home at a price that will net LESS than to mortgage balance due against the property. 

Although the SELLER, or his Real Estate Agent or Attorney, actually negotiate the sales price directly with the buyer, the LENDER must actually approve the price, and the contract - as they are considering taking less money than they are actually owed. 

Such bank approval can take up to three months, possibly more.  Often times, the buyer gets tired of waiting - and moves on.  In some cases, the bank counters the buyer's original offer, and they buyer has the option of accepting this higher price, or walking away from the transaction.

Most distressed buyers have taken out a second line of credit against their home.  This second lender also has to approve a short payment for the deal to go through.  In most cases, the bank with the larger, main mortgage loan - the Superior Lienholder - offers only a small settlement to the second mortgage holder to release his lien.  If the second lender refuses, the sale does not go through.

REO PROPERTIES represent Real Estate Owned by the bank - AFTER the foreclosure process is complete.  If short selling is not successful, and the homeowner cannot find enough money to pay off his mortgage during the foreclosure process, or, here in Illinois, during the 30-day period immediately after the foreclosure is filed, the property reverts to the bank.

Banks typically list their REO properties with a local Real Estate Broker, and negotiates directly.  Many REO properties are in rough condition, as the previous owner has left the premises, sometimes gutting the home on the way out. 

Aiming to keep their carrying costs to a minimum, banks often board up properties they own to secure them, and turn off electricity, heat, and water service.  During cold weather months, banks usually professionally winterize the property to protect against freezing pipes.  It is often the prospective buyer's responsibility to temporarily re-establish utilities if they wish to inspect the condition of the home prior to purchase.

Most REO Properties are sold strictly as-is.

AUCTIONS, through the local sheriff, or, in Cook County IL, through private auction companies, come into play for bank-owned properties after the foreclosure is recorded.  Auctions are posted publicly, and happen nearly every day in Downtown Chicago.  A bank representative is at the auction, who could elect to retain the property if bidding levels are too low.

Many auction properties are in rough condition, always sold as-is, and may have secondary or tax liens attached.  Cash is normally required for auction purchasers - keeping many non-investors, or those looking for their own personal residence, away.

Read Marilyn Kennedy Melia's article in the June 29th Edition of The Chicago Tribune for more info.

DEAN MOSS & DEAN'S TEAM CHICAGO

Posted: Sunday, July 06, 2008 7:07 PM by Dean's Team

Comments

BlogChicagoHomes.com said:

Good Morning! Many prospective home buyers ask our Team about available distressed properties. Some feel

# July 6, 2008 8:28 PM
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