As we all remember in 2008, and during the Great Recession, the words on many homeowners lips were “short sale” and “foreclosure”. Those were the same words on the minds of real estate investors during that same period who were able to come in and get deals on Santa Clara County real estate. Are foreclosures still occurring in Santa Clara County? According to RealtyTrac, who keeps tabs on foreclosure and bank owned activity in Santa Clara County, there has been a low, but steady stream of foreclosures. (see chart). If you are looking for a deal in this market, you will most likely find yourself competing with cash only investors. I can lend my advice on working with distressed homes, if you are interested in learning about what is available.
For some millennial homebuyers, you may not know the terminology of short sales, pre-foreclosure or foreclosure. Below I provide what each means.
What is the difference between a Short Sale, Pre-Foreclosure, and a Foreclosure?
“A short sale is a sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property. In this case, if all lien holders agree to accept less than the amount owed on the debt, a sale of the property can be accomplished.”
Sometimes a short sale may or not be in pre-foreclosure, but the homeowner is mainly asking the bank to sell their property for a little less than what is actually owed on the current loan.
Even though a short sale still goes through a realtor, it really is not processed that same as your typical real estate transaction.
“The biggest misconception the average consumer has about buying a short sale is not realizing how long it takes,” says Field. “It can take between six months to a year to close. Also, people think they are going to get a screaming deal, but they have to understand that the bank is going to try to get as much back as it can.”
Advice: The biggest headache when dealing with a short sale is that the seller does not have final say on the offers that come in. Since the lender is partaking in the transaction, they have the final say and decide if to accept the offers at hand.
“In some cases, foreclosure makes more sense for the lender because there are fewer costs associated with a foreclosure than a short sale.”
“A pre-foreclosure is a property in the process of foreclosure but is still legally owned by the owner”
A bank will start the Pre-Foreclosure process when a home owner is more than 90 days late on the mortgage payments.
Generally, this does not mean the homeowner is suffering, and there will be no guarantee of the foreclosure taking place. Most banks do not want the property back, so if the homeowner reaches out to the bank and begins working on a deal to save their home, the risk of loss nearly eliminates.
Foreclosure is the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.
When buying a foreclosure property, you are taking into consideration that these auction bought homes are unseen and sold as-is; anything and everything could be wrong with the property.
Advice: For someone who just wants to buy a home to live in, it’s not a smart idea, most experts advise.
But whether you’re a seasoned pro or a first-time home buyer, a foreclosure can be a risky investment for anyone. Many foreclosure homes are still occupied by their former owners, whom you would be responsible for evicting.