Nowadays, many buyers are interested in purchasing "distressed" properties hoping to get a great deal. My definition of a "distressed" property is a property where the owner has fallen behind on their payments to either their mortgage company or the homeowners association and a lien has been filed with the courts, initiating foreclosure proceedings.
Of the properties available on the market, short sales are those that are in the earliest stage of distress or "pre-foreclosure". In a short sale, the property owner is behind on their mortgage payment and wants to sell the property, but can't find a buyer willing to pay enough money for the property to cover the remaining principal on the mortgage. The property owner then asks their lender if it is willing to accept less than what is owed on the mortgage.Short sales can take months to complete as lenders try to figure out how big of a loss they are willing to take. In some cases, even after months of analysis, a lender may decide it doesn't want to do one at all.
If a short sale agreement cannot be reached between buyer and seller, the property heads to a foreclosure auction. Buying a property at a foreclosure auction can be an intimidating and confusing process. There is no guarantee that you will be able to inspect the property prior to bidding and there are no guarantees you will have clean title to the property if you win the bid.
In today's market, it's likely that no sale will happen at auction, and the property will end up back on the books of the lender. At this time it is called a REO (Real Estate Owned) property -- also referred to as "bank owned". When the lender takes possession of the property, the title is "cleansed," meaning any problems or claims that may hassle a buyer are removed. You can once again inspect a property after it becomes an REO. When a lender decides to sell a REO, they are normally priced aggressively, as the lender wants to move the property off their books quickly.
Currently in Miami Beach, the condo market is saturated with short sales from owners who were hoping to cash in on the condo boom. As of 7/13, out of the 3,438 condos listed for sale on the MLS, 665 or 19% were short sales. However, only 45 REO condos were listed for sale.
If you are a buyer that is deciding to purchase a REO or short sale property, it is important to remember that many short sales have been on the market for a long time, whereas REO properties are quickly scooped up by all-cash buyers. Looking at condo sales data from 7/1/08 to 6/30/09, we see that 160 short sales were purchased compared with purchases of 251 REO condos. If you looked at the current listings, you would expect the opposite . To me this is clear evidence that short sales are not moving and REO's are flying out the door.
As a realtor, I try and target REO properties for my clients as they are easily accessible and represent great value. If I'm going to look at a short sale opportunity, it's my preference to look at an approved short sale. In an approved short sale, the months of legwork have already been completed and the bank has already indicated the price at which it is willing to part with the property. When putting in an offer on an unapproved short sale, I tell my clients "be prepared to wait".
Tags: condo properties, distressed property, foreclosure auction, Miami Beach, mortgage, REO, short sale
