A foreclosure occurs when a mortgage note is in default to a lender and the lender takes legal action to recover title to the property that secured the mortgage note. In Florida, a foreclosure must be conducted through a court proceeding which typically takes a fair amount of time. In other states (Virginia, for example), the borrower executes a “Deed of Trust” at closing to one or more Trustees and those Trustees can recover title to the property in the event of a loan default without a court case.
A foreclosed property, then, is one that is owned by a bank or other lender. These properties are typically offered for sale through licensed real estate agents the same as other properties. Most lenders have a fairly elaborate set of requirements for their foreclosed properties so the amount of paperwork is typically 2 or more times as much as a regular sale. On the other hand, over the past few years, lenders have become more responsive in reviewing, countering, and accepting offers so submitting an offer on a foreclosed property is typically not a bad idea. Be aware that almost all foreclosure sales are for properties in “as in” condition. In some cases, the previous owner may have left the property in poor condition and, in many cases, appliances customarily conveyed as part of the sale are not provided. The buyer needs to adjust the offering price accordingly. In most cases, institutional sellers will not make price adjustments based on deficiencies discovered in home inspections.
Generally, foreclosed properties are priced using BPOs (Broker Price Opinions) prepared by licensed real estate agents. BPOs, like appraisals, are an estimate of market price but BPOs are not prepared to the same level of detail as appraisals nor are they required to meet the specific standards applicable to appraisals.
A short sale is typically offered is when the borrower is delinquent on his mortgage loan, is facing foreclosure and the value of the property is less than the balanced due on the mortgage loan. In return for avoiding the cost and delay of foreclosure, the bank agrees to let the current owner sell the property for less than the balance due on the loan and, in return, the bank agrees to forgo any deficiency judgment for the difference between the sales price and the balance due on the loan.
Short sales work best if there is an agreement in place between the bank and the owner/seller as to what price the bank is willing to accept. If there is no agreement in place, it can take a considerable amount of time to get the bank to agree to accept a particular selling price.