neohiorealtor.com Blog

If you’re like most people, you’ve probably seen lots of media attention surrounding real estate and particularly the high number of foreclosures in Ohio. There are a number of different real estate terms floating around out there that may sound like they mean the same thing, but can be very different. The most popular terms related to foreclosures would be:

Short Sales
Foreclosures
Bank Owned
Real Estate Owned
HUD

Let’s talk about each one a little and then we’ll discuss what they mean for both buyers and sellers!

Short sales: A short sale is when a homeowner is behind on their payments to the mortgage company and are about to be foreclosed upon. They owe more on their mortgage than their home is currently valued at, so in selling their home, they will be “short” the difference in those two values. The bank will have to step in and forgive part of their loan to cover the difference. If the home doesn’t sell in time, it will go to sheriff’s sale and become a foreclosure. Short sales can be thought of as pre-foreclosures.

Foreclosures: A foreclosure is a type of home on the market that has already gone to sheriff’s sale. If the bank that holds the mortgage in default doesn’t get a high enough bid at the sheriff’s sale to warrant selling the home, they will buy it back and re-sell it.

Bank-Owned: Bank owned properties are those in which the bank has bought back the house at sheriff’s sale and now needs to turn around and list it for sale to get it sold. The term is synonymous with REO or real estate owned.

Real Estate Owned (REO or R.E.O.): This is another term for bank owned. The bank needs to recoup their loss on the original mortgage as best as possible and will put the home up for sale with a brokerage.

HUD (Housing and Urban Development): HUD houses are simply any house that the owner purchased using FHA (government backed) financing, rather than a conventional loan. They defaulted on that loan, and because it was government backed, the government is now responsible for selling the house and recouping as much money as they can. It has nothing to do with government subsidized housing or inferior construction as many people often think.

The only difference between a bank owned or REO home and a HUD home is who is selling it!

Now let’s talk about how these homes affect buyers and sellers!

As a buyer looking to purchase a home that you’d like to get a great “deal” on, these are frequently the homes that offer that potential, but they come at a different kind of price! While you may be able to get away with lower offering prices on these types of homes, they can frequently pose different stumbling blocks than pursuing a more traditional transaction. Many times the condition of the home will be far poorer (if people can’t afford their mortgage payments, they aren’t going to be keeping up with maintenance!). Also, the time it generally takes to get an accepted offer is much longer than a traditional transaction. It is not unheard of for banks dealing with short sales to take 6 weeks or more to give a response on an offer! If you’re willing to wait it out and deal with the potential issues with the house, you may end up with a bargain.

As a seller, if you are falling behind on your payments and you are worried about defaulting on your mortgage, a short sale may be your best option. Banks would rather deal with a short sale than have to go through the tedious and expensive process of sheriff’s sales and REO sales. You stand a much better chance of getting a higher price for your home under a short sale than if it goes to sheriff’s sale or beyond. Your credit rating will typically also suffer a smaller hit with a short sale than with a full foreclosure.

If you are considering buying one of these types of homes, it’s important that you work with an agent who understands the differences and can educate you about the process. As a Foreclosure Specialist, I’m happy to assist you with them.

If you are in need of selling your home and are in the process of being foreclosed on, we may be able to help you get your home sold before it’s too late!

If you have more specific questions or comments, please feel free to let me know!