Posted by: Meena Gujral | March 10, 2010

Foreclosures in Fremont- What does it all mean? – in the words of a Fremont Realtor

  What are the differences between Foreclosure, Short Sale and REO?

In the real estate business, Foreclosure, Short Sale and REO are three of the terms to be well acquainted with in today’s market. Buyers and sellers must understand these terms to be able to fully comprehend the contracts and pertinent documents in the selling or acquiring of a real property. 

What Foreclosure, Short Sale and REO are all about: 

The real estate business is one of the most profitable businesses today. There are common and legal terms that must be well understood by people who ventures in this kind of business. Buyers need to be well aware of these terms more than the sellers do. Foreclosure, short sales and REO are three of the most popular terms in the real estate business. So, what do these terms actually mean? 

1. FORECLOSURE

 Foreclosure is the term used for the legitimate, lawful and licensed legal action where in a mortgagee or lender acquires a court ordered termination of equitable rights of redemption of a particular property. This is particularly true in case the borrower is not able to pay the interest for a succeeding period of time. The lender will obtain the security interest from the borrower who mortgages properties and assets like residential homes, lots or any real estate property to be able to acquire a financing assistance. Every lender makes sure that the borrower has a property to be pledged as payment in any case the later fails to pay the interest and principal of the amount borrowed. 

The court has the power to give the borrower equal rights with the lender provided the borrower fails to pay the amount due to be paid and the lender tries to repossess the property. It can happen if the borrower negotiates with the lender and the later agrees to the plea. It must be understood that both parties must mutually agree to stipulate this kind of clause in the contract between them. The courts of equity have the authority to award equitable right to redeem in favor of the borrower should he be able to repay the debt due to him. Even with the existence of such equitable right, the lender will not have a total confidence to successfully repossess the property. With such case, the lender resorts to seek foreclosure of the equitable right of redemption. The owner’s right of redemption of the property can also be foreclosed by holders provided  the owner fails to pay for other accumulated debts, such as for overdue taxes, unpaid contractors’ bills or overdue HOA dues or assessments.  

In the residential mortgage loan, the manner of foreclosure is a bank, financial institution or which ever secured creditor who possess the authority to sell or repossess a particular real property, may it be land possession or residential unit in case of the owner’s failure to comply with the documented agreement between the lender and borrower. This agreement is particularly known as a “mortgage” or “deed of trust“. In most cases, the defiance of the mortgage is a failure in the payment of a promissory note. The lender has the authority to offer the property open for sale in the market when the said process is completed. He can use the proceeds from the sale to pay off its mortgage and other accumulated legal costs. The lender can also file a claim for a deficiency judgment in case the sale does not result to ample value to cover for the remaining balance of the principal and other accumulated fees. 

2. SHORT SALE 

The term short sale in the real estate business is the sale of real estate wherein the proceeds from the transaction is not enough to cover the balance borrowed or loaned for a financial institution which was previously secured by the real property sold. In this particular situation, the bank, financial institution or mortgage lender is amenable to discount a loan balance due to the inability of the borrower to pay the balance due to an economic or financial hardship on the part of the mortgagor. The mortgagee can permit a negotiated agreement with the borrower which will be done through communication with a bank’s loss mitigation or workout department. The property owner or borrower will process the selling of the mortgaged property at a lesser value than the outstanding balance of the loan. Then, he turns over the proceeds of the sale to the lender to cover the remaining debt. This can not always be the case since most of the time, the proceeds will not be enough to cover all the remaining amount due. When this happens, the lender executes the authority to approve or disapprove of a proposed sale. Most of the time, Short Sales leave a deficiency balance which is still a liability of the mortgagor or borrower. It was found out that 99% of all cases of shot sale were not settlement-in-full. 

3. REO (REAL ESTATE OWNED) 

This particular real estate term known as Real Estate Owned or REO is a collection of real property owned by a lender after an unsuccessful sale at an executed foreclosure auction. The lender can typically be any financial institutions like banks who offered mortgage loans to the owner of a certain property. The bank will usually decide on the opening bid or benchmark amount at a foreclosure auction which may be equivalent for at least the outstanding loan amount of the borrower. The bank can then legally repossess the property if there are no bidders that are interested on the auctioned property. The property will then be listed among the REO or Real Estate Owned on their book. It will be categorized as a non-performing asset. 

The bank can start to evaluate the amount of equity of a certain real property in case the borrower or home owner fails to settle a scheduled payment for the mortgage or as soon as a property goes into a distressed status. The common method or solution used to determine the equity is to order an appraisal or obtain a Broker Price Opinion (BPO). The bank will then decide to process a short sale or have the property go through a foreclosure auction based on the amount of equity that is determined from the BPO. If the property can be sold through either of the options, the bank can now exempt the property from becoming a REO property. 

Once the bank repossesses the property, it can classify it into REO property.  The bank also has the option and authority to sell the property on its own. The bank will then remove some of the liens and other unsettled expenses on the home and try to resell it to the public. The sale can either be through future auctions or direct marketing through a real estate broker or realtor. At most circumstances, bank REO properties are in destitute physical state. It may appear to need great amount of repairs and maintenance. Often times, the bank sells these kinds of properties at a very low cost and real estate investors will often go after these properties. The meager value of the property is more than enough to cover for the condition of the property. 

Are you looking to buy or sell a short sale home? I specialize in Short Sales. I have had a 100% success rate with my short sales. I can send you a list of Foreclosure and short sale properties that are currently on the market. 

Are you a For Sale By Owner? I can show you ways of selling through Help-U-Sell to save thousands of dollars and sell your home quickly for a low set fee or if you are looking to buy a home please call Meena Gujral, a Fremont realtor at 510-279-9580 or go here: Fremont Homes

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: