Lumped together in the category of 'distress sales', foreclosures and short sales involve their own complications. In a foreclosure, the lender takes back the property because the homeowner is no longer making mortgage payments. Foreclosure procedures vary by state and locality and are often drawn-out, complicated affairs. Homeowners often try to rally enough money to get caught up on their mortgages and stay in their houses. Various federal, state, local and lender programs complicate the process because they have different rules for homeowners and lenders. And based on fraudulent or faulty lending procedures, some homeowners and lawyers are challenging foreclosures in court. All of these factors make buying a house in foreclosure an unpredictable and frustrating process. Tales abound of lost paperwork, unresponsive lenders, confused homeowners and tangled legalities. Yet, foreclosure properties can be had for 30% less than neighboring properties that are not distress sales. If you pursue a foreclosure: • Determine where the house is in the foreclosure process. Are the homeowners just one payment behind, or is the house actually owned by the lender (REO, or real estate owned)? Do you know who has the right to sell the house and who will has a say over approving the sale? • You will probably be competing against all-cash buyers and investors who are experienced at buying foreclosures. Lenders prefer all-cash buyers because they make for quick, simple sales. • The lender may or may not be willing to make repairs or negotiate the price. • You must have the house thoroughly inspected, because foreclosures often fall into disrepair. The cost of fixing up a foreclosure can approach the cost of buying a non-distressed similar property. • Expect to make and lose several offers before hitting on a deal that makes it over the finish line. • Track Orlando foreclosure trends and signup for notices of pending foreclosures. Short sales are houses that are worth less than the mortgage the owners hold. For example, if an owner owes $200,000 on the mortgage and the house is worth $160,000, the owner is 'under water' $40,000 on the house. (And that does not even take into account what the owner originally paid.) In a short sale, the seller must get the OK from the lender to accept an offer for less than the amount due on the mortgage. This involves much paperwork and many delays as various decision makers at the lender weigh their options. Meanwhile, the homeowners are likely to be short on cash and the house might be falling into disrepair. It is imperative to get a thorough inspection of a short sale and to examine the house carefully again right before you close on the deal.
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