Erika Krebs, Realtor

Foreclosures, short sales and real-estate-owned (REOs) are distressed sales but different types of distressed homes for sale. However, they are similar because without knowledge about handling foreclosures, short sales and REOs, you could find yourself in foreign territory. For example, while all short sales are foreclosures, not all foreclosures are short sales. To further complicate matters, REOs are not short sales either, but some intended short sales can end up as an REO.

What is a Short Sale Property?

A short sale occurs when a home owner is in foreclosure but before the property goes to public auction. Under a short sale, a lender must agree to accept less than the amount that is owed on the property.

Unlike a foreclosure, investors typically buy the home for even less because investors are not paying off the existing loan nor making up the back payments. Investors are striking a deal with the existing lender to take less than what the lender has coming to avoid dealing with a foreclosure.

Lenders are not going to make a deal with an investor unless the seller has fallen behind on the seller's obligation to make timely mortgage payments. For a buyer who wants to occupy the home, buying a short sale makes financial sense. With the Sub Prime Mortgage Crisis, short sales have become a controversial escape to the foreclosure/auction/ruined credit process. They have become so prevalent in the Santa Barbara County that the offer process now can take up to 90 days, so you must be patient. If you are interested in seeing short sale properties in Santa Barbara, please contact me today!

What is a Foreclosure Property?

A foreclosure property is a home that has started the foreclosure process; when a notice of default has been filed in the public records. It means the owner has stopped making mortgage payments and the lender has given notice that unless the payments are brought up to date, it will sell the property to the highest bidder. Lenders can foreclose for other reasons, but the most common reason lenders file a notice of default is when a borrower is at least two payments behind.

If the home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain period has passed is to try to auction the property at a public sale. Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to a point, the time which varies from state to state. In California, is can be anywhere from a few weeks to a year, depending on the judge and the compliance of the seller.

Real estate investors and home buyers see profit in buying foreclosures because they can often buy the property for the amount owed, while the home owner's equity is free.

How California law Affects Foreclosure / Short Sale Investors

States have varying laws governing foreclosures and some follow California law. To completely understand your rights as a foreclosure buyer, contact a local real estate lawyer. However, realize that in California, a real estate agent cannot represent a buyer who is an investor to purchase a foreclosure property if all of the following four statements are true:

· The home qualifies as the seller's personal residence.

· The property is a single family home or 2 to 4 units.

· A Notice of Default has been filed in the public records against the property.

· The investor buyer will not occupy the property.

If any of those four statements are false, an agent in California is allowed to represent buyers, especially if the buyer is going to occupy the home. If you are an interested BUYER, please contact me so that I may answer any questions and further assist you in this process.

But to represent an investor, a real estate agent is required to post a bond, and no such bond is available in the state of California. So as a pre-foreclosure investor in California, I strongly suggest you contacting a real estate attorney since you are, unfortunately, on your own.

Moreover, as an investor, you are required to comply with the Home Equity Sales Act. Among other requirements, sellers who are in foreclosure have the right to rescind (cancel) a transaction within five days. Investors must give the seller notice of that right, including a copy of the form that will let sellers cancel.

Failure to comply with the Home Equity Sales Act carries severe penalties, including a provision that gives the seller the right to cancel the sale up to two years after the sale to the investor has closed and get the property back. You read that correctly - two years. As an investor, before you decide to buy a home in foreclosure by making up the back payments to the lender, giving the seller a few dollars and recording a deed, call a real estate lawyer.

What are REOs - Real Estate Owned?

· Buying an REO is similar to buying a short sale except the property is already owned by the lender.

· The property was acquired by the lender through a foreclosure action.

· Often lenders will sell repossessed homes for less than the past loan balance.

· Bank-owned properties are called REOs, meaning real estate owned by the lender.

Banks end up owning the property when nobody at the public auction bids enough to cover the amount owed against the property. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor, the investor's agent, the bank and the bank's agent who are negotiating the transaction. Please contact me if you are interested in the REO's available in Santa Barbara.

For more information, please seek the advice of a real estate lawyer.