Defining Distressed Housing

Denver’s crowded housing market has many potential buyers considering distressed properties to open up their options and further their budget. But what exactly is distressed housing and what type is best for you? Read on for a breakdown of the four primary types of distressed housing you can find on the market.

Short Sale:
A short sale occurs when the sale price of a property can’t fully pay off the existing loan. In this scenario, the lender agrees to take a discounted payoff as payment for the homeowner’s loan. Because the property owner is requesting the lender (the bank) to accept a lower payment than the loan owed, the bank is involved in the sale process and gives the final approval on the selling price.

Despite its name, the involvement of the lender makes the short sale one of the most time-consuming distressed property transactions.

Foreclosure:
When a homeowner fails to make monthly payments towards a mortgage loan, the lender seeks a foreclosure to recoup money offered for the loan. The foreclosure allows the bank to offer the property for sale at auction.

REO/Bank-owned:
Both “real-estate owned” (REO) and “bank-owned” means a property is owned by the bank. The situation occurs when a foreclosure fails to land a buyer at auction. Bank-owned or REO properties are sold by real-estate agents on an “as-is” condition, which implies that any repairs on the property are up to the buyer.

HUD Home:
HUD home refers to property that was originally purchased with a Federal Housing Administration (FHA) insured loan. The FHA is in the Department of Housing and Urban Development (HUD).

The FHA guarantees the privately offered loan, so if the borrower defaults on the loan, the agency pays off the lender and acquires the property. The property becomes a HUD home and is sold through an online bidding process.

Distressed properties can be a great deal, but it’s important to work with a professional who knows the ins and outs of these types of transactions. If you’re considering adding distressed properties to your home search, contact Metrowest. We specialize in these types of sales and would love to help you start the process!

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