What should you know?
HUD Homes, Bank-Owned, Pre-Foreclosure, Short-sales… What are we talking about here??
HUD Homes
These properties have already been through the foreclosure process and are placed on the market by HUD (The Department of Housing and Urban Development). They are vacant, sold “as is” and ready for immediate occupancy. Although they are advertised in the MLS, they are purchased through an online bidding process. The first 10 days a HUD property is on the market, only buyers who plan to live in the home are able to place a bid. All bids must be placed through a real estate agent. Down payment of $100 is available if you plan to live in the property and use FHA financing. (not investors)
Earnest money deposits must be in the form of a cashiers check and require a minimum of $1000 on all listings over $50,000 and $500 on properties $50,000 or less. Lender Pre-approval letters or proof of funds for cash purchases must be submitted with all offers. If a suitable offer is not accepted during this initial bid process, it is then open to investors. Although the bidding process moves quickly, allow a little longer to close than on a normal real estate transaction. HUD purchases are not usually a good match for buyers who need to be in a home within a certain time frame. To learn more details about how to buy a HUD property, visit HUD.gov.
Bank-Owned/Corporate Owned
Bank-owned homes (often called REO properties) have also been through the foreclosure process and are currently owned by a bank or corporate investor. They are sold “as is” and are vacant and ready for occupancy. They are normally listed on the MLS and are viewed through a Realtor.
Offers are made the same as on any other property. The banks will require a lender pre-approval letter or proof of funds (cash offers) be submitted with all offers. They are not likely to entertain an offer with contingencies. For example, you cannot expect them to accept an offer contingent on the sale of another home. It may take several days for a bank to respond to an offer depending on the individual bank, so a little patience goes a long way. Closing may or may not take longer than an ordinary transaction; again, it depends on each bank. Find Foreclosure Properties in Indiana
Pre-Foreclosure/Short-sales
Contrary to what you may think, short-sales do NOT mean they are quick! Short-sales/Pre-foreclosure listings take place when the sale price of a home is less than the outstanding mortgage balance on the property, thus “shorting” the lender. Usually, the homeowner is behind in payments and cannot afford to keep the home; but, also can not afford to sell the home because of the loss of equity (often due to 2nd mortgages) and expenses involved with the sale of a home. In a short-sale situation, the homeowner still retains title to the property, but all offers are contingent on their lender’s approval.
Sellers must submit a hardship/short-sale package to the bank for their consideration. The bank will review the package and decide if they will accept less than the total due, thus the name “short-sale”. The bank usually allows and even prefers the homeowner to remain in the home until the sale is completed.
These homes are listed on the MLS and may include the words “short sale” or “pre-foreclosure” in the property description section. They are usually sold “as is”. Offers are written with a Realtor in the same manner as a normal property. The homeowner can accept or counter the offer. Once an agreement is reached with the homeowner, the offer is then sent to the bank for their approval. It’s important to note that lenders will not consider most contingencies. For example, you cannot expect them to accept an offer contingent on the sale of another home.
Banks are currently overwhelmed with short-sale offers and may take as long as several months to respond to an offer, although local banks tend to move much quicker than large national lenders. Short-sales can be great values, but they require patience and can be very frustrating. It’s possible you may wait for several weeks, only to discover the lender has accepted another offer because they often continue to market the property and take additional offers until they make their decision. Then once the bank finally accepts a short-sale offer, the buyer must be prepared to move very quickly as the bank may require the transaction to close on a shorter timeline.
Other Questions?
What is a “distressed” property?
A distressed property is one that is listed for sale as either a short sale, pre-foreclosure, foreclosure, or (possibly) as an estate sale. These properties typically sell for less than full market value due to work needing to be done, “as-is” status, or desire of the sellers to sell quickly. Appraisers take this information into account when appraising other comparable properties.
What does “As-Is” mean?
The buyer still has the right to have the home inspected so they know if there are any serious defects, but the bank or homeowner will not be making any repairs to the property.
How can a property be inspected if the utilities are off or it’s been winterized?
The buyers must pay to have the utilities turned on and also pay to have the property de-winterized and usually re-winterized.
What is “winterized”?
A professional has turned off power & water to the home and put anti-freeze in the water lines in order to keep the pipes from freezing while the home is without power.