Pre-Foreclosure
This term often doesn’t have a
legal meaning. What it usually means in day-to-day practice is that the home
owners are trying to sell because they know they have either stopped (or will
soon stop) making the mortgage payment. Often, the home owners also know or
suspect that they can’t sell for what they owe on the home, and any resulting
sale will be a Short Sale.
Short Sale
In this case, the homeowner has
usually stopped paying the mortgage. In addition, the home is worth less than
what they owe the lender. If they’re able to (1) find a buyer and (2) get the
lender’s blessing on the deal, the lender will accept a portion of the total
loan payoff amount. The lender is left short, hence the name.
Short Sales are sometimes great bargains for buyers, but know that buying a
short sale property can take months. The home comes without any disclosures
about condition, and is sold As Is. Buyers can inspect the house but
Sellers/Lenders won’t do any repairs. Sellers/Lenders will almost certainly not
contribute to the Buyers’ costs.
Finally, you have to play a waiting game. Lenders are overwhelmed, they were
never set up to operate a real estate brokerage in the first place, and will
probably take a month or more to even acknowledge receipt of a Buyer offer. To
add insult to injury, if you don’t submit a complete package of documents,
you’ll be waiting even longer while the lender requests docs one at a time.
Foreclosure
Foreclosure is a term for the
process of a home's ownership changing from the purchaser to a new buyer
(through short sale or auction), or back to the Lender as an REO
REO
Also known as Lender Owned. One way or
another, the lender now owns the home. Maybe the homeowner just mailed in their
keys and disappeared. Maybe the home wasn’t bought at auction. In any case, the
lender owns it. They’ve already taken a loss against the original loan balance
on the property. REO properties carry all the downsides of Short Sales except
that you’re more likely to get an answer within days or weeks on REO
properties. However, the bank is unlikely to take much below list price.
They’re already taken a big loss and usually these properties are listed pretty
close to the rock bottom of what the bank will accept.