REO, Short Sales and Foreclosures: What’s It All About?
Mark Anderson, Owner’s Network Real Estate- Broker, Realtor®, Green designation
Published June 8, 2009

The real estate market has been in the news a quite a bit in the last 15 months. To some families this has been a disaster, totally upsetting the stability and security of owning a home. This market plunge, unfortunately has affected millions of families. The ever shrinking job market and the erosion of most all financial assets have dramatically affected the real estate market. You don’t need me to remind you of this economic bust, to but it mildly.

To many in the industry, the prior explosive boom in housing prices in 2006 and 2007 was leading to a market adjustment in the near future. The real estate market has historically been cyclic in nature with prices rising and falling periodically every 7 to 10 years. This ‘adjustment’ was sooner and deeper than expected. Contributing factors were the AIG problem and other dicey financial instruments that came close to ponzi schemes, depending upon who is doing the market plunge analysis. Regardless of the cause debated by many financial and economic analysts, we’re stuck in the middle of it. The bottom is not in sight however the rate of plunge seems to have slowed, some consolation. The harsh reality of this ‘economic meltdown’ is that a large number of families cannot afford to pay their home mortgage.

There are many who will walk from their mortgage resulting in foreclosure and damage to their credit rating. Currently there are over a million homes in foreclosure. California, Florida, Arizona and Nevada have nearly 400,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.6% of all of the loans in these states are now in foreclosure.

Foreclosure is the legal process by which an owner's right to a property is terminated, usually due to default. Typically it involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt. This sounds harsh but the process actually takes several months and there alternatives to a foreclosure. One of these is a ‘Short Sale’. When the homeowner cannot get enough from a sale to pay the mortgage, they will work with the lender, negotiating to have the lender accept less then the full amount for the loan when the house sells. This has minimal damage to their credit rating compared with a foreclosure. Both situations are often referred to as ‘distress sales’. In the recent past, releasing the fact that the homeowner is negotiating a Short Sale was considered a negotiation disadvantage to the homeowner and was carefully handled. Now in today’s market, this situation is common and used to market the home to advantage. The real estate market is definitely a cyclic industry.

Either way, the result has two effects. First there are many foreclosed and Short Sale homes on the market today which provides opportunity for a home buyer The downside to this is it has dramatically lowered the value of homes in Phoenix as well as nationwide. See buying a REO/Foreclosed property link. See why a foreclosed home such a good value today

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