Foreclosures and short-sales are the buzz-words in today’s Orlando real estate market and Florida is one of the top three states for foreclosures in the country. Bank-owned properties can offer tremendous bargains for real estate buyers, both for investors and those looking for a home to use as their primary residence. Florida was second in the nation in number of foreclosures in 2008 and the Orlando area ranked seventh in the nation among major metropolitan markets.
Most real estate buyers leap before they look when it comes to these types of properties. They think they are going to come away with a “steal of a deal”. Maybe they will, but they can also get burned. Extensive due diligence is extremely important and absolutely necessary when buying foreclosures and short-sales.
What’s The Difference Between a Foreclosure and a Short Sale?
A foreclosure, also know as a bank-owned or REO (Real Estate Owned) property is one which has been obtained by a lender from a defaulting borrower who pledged the property as security for a loan. The bank or lending institution then seeks to resell the property to recover the funds that were originally lent to the borrower.
A short-sale occurs when the proceeds from the sale of a property are not enough to cover the amount of the current mortgage. The lender agrees to take an amount “short” of what they are owed. Why would the lender do this? To avoid the costs of foreclosure and to incur a smaller financial loss than they would sustain by foreclosing. Extenuating circumstances, such as the state of the real estate market and the borrower’s financial situation, will influence whether or not the lender will discount the loan balance.
Which Offers The Best Deal For Me?
Foreclosures are being sold by extremely motivated sellers. Lenders do not want to own property and they will usually price the property aggressively to sell it quickly. The market is polluted with homes listed at unbelievably unrealistic prices that the lender would never accept. Isn’t this just “bait and switch”? It certainly is, but the Multiple Listing System is allowing it and listing agents hope they can create bidding wars at these ridiculously low prices. Some lenders are taking 60 days or more just to respond to a short sale contract and there is no guarantee they will take the price advertised in the MLS. If you are going to target short sales, then you should target those that have already received lender approval at a certain price. It is possible to find a deal on a short sale, but it will take a great deal of time and patience. Smart money remains on the foreclosures that are already lender-owned.