Thursday, November 6, 2008

Real Estate Short Sale vs. Foreclosure

In Santa Clara county (San Jose area) 69% of the homes being sold today are either Short Sales or Foreclosure properties. Huge numbers, but what's a Short Sale?
Here’s an example. Two years ago, a couple bought a home for $600,000. They put down $60,000 and had a $540,000 mortgage. Today they are barely able to keep up the payments and have to sell the home. Frankly, most people in this category weren't qualified to buy the home to begin with but were able to get a loan anyway. Today, that home is worth $400,000. They don’t have the money to make up the difference. Therefore, the bank must approve the sale and take a loss. In other words, they are “short” when they sell the home. The next phase is when the homeowners stop making the payments and are eventually foreclosed upon. Then it becomes a Foreclosure property. There are three ways to describe a Foreclosure property but don't be confused, they all mean the same thing. ("REO", Bank Owned, and Foreclosures). "REO" stands for the way a bank categorizes it's Foreclosures and refers to "Real Estate Owned". There's some outstanding opportunities for investors and first time home buyers in this market. More on that tomorrow...