You’ve heard a lot about Foreclosures lately.  The Minneapolis Star & Tribune recently had an article about them and according to Lender Processing Services (LPS) foreclosures initiated by Fannie and Freddie jumped 21 percent between May and June.  
 
Foreclosures affect every part of the Real Estate market and no neighborhood has escaped the issue lately.  Generally they negatively impact area home prices.  What does this mean if you’re buying or selling a home?   What follows is a quick overview of the terminology and process.

On the road to Foreclosure, a homeowner goes through several stages.  There is a program that helps homeowners work with the banks to modify the loan.  If a homeowner has tried to negotiate a modification of their loan and has not been successful, the bank will suggest they sell the home.  In many instances because of the decline in home prices, the homeowner owes more on the home than it is worth.  This is called a Short Sale.  If this doesn’t work in a timely fashion the Bank starts the foreclosure process which could take six months to a year.  Depending on the particulars, if the homeowner doesn’t redeem the property it becomes an REO, or more literally, a Bank owned property.    In both the Short Sale and the REO your Realtor will end up negotiating with the Bank or possibly with Fannie Mae and Freddie Mac.

Why?  When it is a short sale, the homeowner still owns the property and generally still lives in it.  More often than not, this is a good thing.  They are taking care of the home because it benefits them to get as much for the home as possible.   On the back end, your Realtor will be negotiating with both the homeowner and the bank because the bank also has a vested interest.  This is the period that has given banks a bad name since the process usually takes longer than negotiating only with a homeowner. A good Realtor will get a negotiated price from the bank before they get an offer so that the process will be smoother.   
 
When the property becomes Bank owned (REO) the foreclosure is complete.  The bank has already decided how much they will get from the property and have written off the rest.  At that point the homebuyer’s Realtor is negotiating the sale with a company that would like this asset off its books.  While that is a better position for the homebuyer, the property is very often not in the best condition.  While there are various reasons for this they boil down to the fact that no one is living there and taking care of the home.  

If you know someone who is worried about their mortgage, a Realtor that is adept in Short Sales can help them out.    This was a very quick overview and if you would like more in depth questions answered, don’t hesitate to ask.


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