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On a national scale, the majority of homes for sale are distressed properties.  These homes are made up of either Short Sales or Bank Owned (REO) properties.

Short sales are homes that are in the foreclosure process and the initial lawsuit (Lis Pendens) has begun.  During the foreclosure process, the lenders holding the lien are willing to sell at a discounted rate, i.e., they will sell the home “short” of the actual mortgage amount.  These transactions often take a little longer to close because the process requires negotiating between all parties: the buyer, the seller and lender. These homes are best suited for the primary homeowner that is looking for a turnkey home at a discount, and is willing to wait.  For the lender, it is most advantageous to sell the home in a short sale because it costs more to foreclose on the property.

REO’s, on the other hand, are properties that have already gone through the complete foreclosure process and are now owned by the lender or bank that held the mortgage. REO’s usually sell at the lower end of the home value spectrum, in comparison to other homes on the market.  Generally, they are not in the best condition, and are in need of repair. These repairs can be as extensive as a new roof or as minor as new paint and carpet.

Because of the condition of most REO’s, they are best suited for investors and a purchaser that is looking for a renovation or remodel for primary purposes.  Because of the condition of the home, many banks will not lend for purchasing, making many of these transactions cash deals.  REO closings tend to be quicker, typically occurring within weeks.

When purchasing REO’s or Short Sale homes, make sure you understand the title policy and that it is clear, marketable, and free of all existing liens.