Distressed Real Estate Properties - Portland, Or
These days the terms short sale and REO are commonplace when discussing real estate, and often get grouped together. The two are similar in the sense that both are distressed properties, but actually differ in classification and the process of purchase. A short sale is a real property facing foreclosure that an owner is attempting to sell for less than they owe their creditors, while a Real Estate Owned is a property that has already been foreclosed upon and is now bank-owned. In Portland's close-in neighborhoods short sales currently represent 19% of the residential market while the percentage of REO's is just under 5%.
We’ve all heard the horror stories that many have now experienced of endless waiting and confusion surrounding distressed properties. The unpredictability of banks decision-making, ups and downs of a transaction, and again the waiting constitute for stress and un-satisfied buyers and sellers. But it can’t all be doom and gloom or who in their right mind would consider pursuing such a property?
There are many things to consider before pursuing a distressed property, but here are few highlights. First, thorough discussion and careful planning with an expert is essential. Then, choose a property and construct an offer with the necessary verbiage to protect the buyer’s rights and interest. Here’s where the paths diverge between short sales and REO’s.
If the property is a short sale, it is not recommended to put all your eggs in one basket so to speak, but leave options open. It’s normal for a buyer to be able to back out of a purchase contract for any reason up until the seller’s lender gives consent to the short sale without penalty. On the other hand, sellers often continue to market their property attracting more offers which may bump the first offer out of position. Because of the unique and uncontrollable nature of short sales, we recommend clients submit the offer and keep looking for other properties. When another property is found, the short sale offer may be easily rescinded.
If the property is an REO, the sale process follows a much more traditional timeframe, but differs greatly. The sale almost always uses forms and procedures developed by the lender involved as the seller’s lien holder. The additional provisions in the contract usually benefit the lender such as their right to cancel the contract anytime prior to closing, or for the buyer to pay a penalty for a late closing.
Another common issue is that most REO sales are “as-is” meaning that the lender will not complete any buyer requested repairs to the home. They will also not be required to make the same disclosure as traditional seller’s since most have no knowledge of the home’s history or condition. It is therefore critical that the buyer undertake a due diligence investigation of the property to satisfy themselves of its condition and fitness for the buyer’s purpose.
The first step of pursuing a distressed property, discussion and planning with an expert, is so important and we’re here to help! Realtors can give important marketing, business and negotiating advice crucial to the process without crossing the line of giving legal advice. But, if an attorney is what your situation calls for, we’ll gladly refer a reputable one your way.