If you’re in the market for a new home, foreclosed properties can be really appealing – especially if you’re in an area where housing inventory is low or largely unaffordable. Keep in mind there are various stages of foreclosure that come with their own set of rules and exceptions. Here we’ll touch on various types of foreclosures so you can determine which might be best for your needs and budget.
Pre-foreclosure or short sale
During pre-foreclosure, the homeowner still has control of the property. In this case, typically the owner has stopped being able to make timely payments and likely negotiated with the lender to sell the house below market value, which is also known as a short sale. The owner vacates the property at the time of signing the short sale agreement. You can make an offer to purchase the property, but the lender has to agree with the homeowner to accept less than the outstanding balance on the mortgage loan.
Auction sale
In the case a home doesn’t sell in the pre-foreclosure stage, they will move into foreclosure and sold at auction. When the property is sold to the highest bidder, the liens are paid and any overage is given to the homeowner. However, once the loans are paid, there’s usually no money over. Auctions are usually cash only, which tends to limit the field of bidders to investors and other lenders.
Real Estate Owned (REO)
If the property fails to sell at auction it will move into the full possession of the lender and become real estate owned. Generally, lenders want to move this distressed asset off their books immediately and will price to reflect the market value of the property. For buyers, that means that there will likely be little room for negotiation.
If you’re considering purchasing a distressed property in the Denver area, call Metrowest. Our experienced pros specialize in this type of sale and would love to help you explore your options.