Ever since the real estate market bubble burst, short sales and foreclosures are flooding the market. For many first-time homebuyers, these terms can be intimidating and even scare away potential buyers. Many homeowner hopefuls know that a short sale and a foreclosure are both distressed properties, but even more of them don’t understand the difference between the two.

Short Sale – A short sale is a property that is no longer worth the amount than is due on the loan. Simply put, the sellers have a mortgage on the property for more than the sales price. The sales process can be long and tedious, since the sellers first must approve the sales price, then the bank holding the mortgage must also agree with the price. Sometimes it can take a bank three or four months to simply respond yes or no to a sale, which is a deterrent for many home buyers who are looking to move more immediately. A short sale, while it may be considered a “distress sale” isn’t necessarily in danger of being in pre-foreclosure. Many people continue paying their mortgage, even when they know they are paying much more than the house is worth.

Pre-foreclosure – A house is in pre-foreclosure when the seller has knowingly stopped making payments on their loan and has either received a notice of foreclosure (legally called a “lis pendens”) or has missed three mortgage payments and the banks are no longer willing to work the owner on a payment plan. A seller has three choices at this point, they can sell their home, they can try to refinance through another bank, which is difficult to do, or they can allow their house to go back to the bank. The foreclosure process can take up to three years or more, and can become a long, drawn-out process.

REO – Real estate owned, or bank owned property, are homes that have already gone through the foreclosure process and are now owned by the banks. REOs can offer some great deals, but can also be in bad shape. The problem with buying an REO is that you’re typically buying in “As-is” condition. Unfortunately, sometimes the old homeowner has left the place a mess or sabotaged the appliances as an attempt to get back at the banks. Some REOs, however, are in great shape, but no matter what you do, it’s always important to get a thorough inspection before buying a bank owned property.

For more information on homes for sale in Denver CO, check out our blog at PorchLight Realty.

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