Austin Foreclosures What Type Will You Buy?

Austin Foreclosures: The difference between foreclosures

, pre-foreclosures, REO properties and short sales

Lets talk about different types of distressed properties.

A foreclosure is a legal process whereby a creditor repossesses collateral for a loan that's in default. In most cases, that means the bank or mortgage lender repossesses a house so that they can resell it to satisfy the debt. Usually, they put the home up on auction, with a minimum or reserve bid equal to the amount of money they need to clear their debt and associated fees. This amount tends to be below market value, which is why you have the opportunity to get a good deal. However, the property is usually sold as is (and in most cases, buyers are unable to inspect the inside of the property).

This sale is referred to as the foreclosure auction and you most likely have heard of this auction that happens here in Austin once a month on the county court house steps.

You also may have heard of Pre-foreclosures. This is the period before the property goes on sale at the foreclosure auction. The pre-foreclosure period allows time for you to research the property and possibly contact the homeowners with a deal.

For the most local Austin homeowners, it's also the period of time where they may be able to save their home from foreclosure, provided they can satisfy the debt and all fees. This period of time happens before the foreclosure auction and is referred to as the reinstatement period.

Another type of distressed property the REO or Real Estate Owned properties. There are a ton of thee in Austin. An REO is created when no one bids the minimum amount at the Austin foreclosure auction, so then the bank becomes the property owner. Since a bank is in the business of loaning money and not holding onto real estate, the banks next objective is to move this property off their books.

Buying REO property tends to be a safer transaction (as opposed to buying at a foreclosure auction), since the bank often, but not always, makes repairs and ensures they give you a clear title. If that happens, then you can expect to pay more for the property to cover those additional expenses. Otherwise, if the bank doesn't do these things, then you can usually buy the property for less than the opening bid at the original foreclosure auction. So sometimes, you can find a better deal buying an REO and skipping the local Austin Foreclosures auction.

Another type of distressed property is a Short Sale. A short sale occurs when the bank or other lender agrees to take less than the total amount owed on the loan to satisfy that debt. This happens during the preforeclosure period.

One of the reasons a lender would agree to this is to avoid a foreclosure. Obviously, a short sale helps the borrower since they can avoid losing their home and further damaging their credit. It makes sense for the bank because they won't have to put the time and money into going through the foreclosure process.

That's all for today. Now you know the difference between the difference terms used in the foreclosure process. What you need to think of next, if you are considering investing in a distressed property, is what stage of the foreclosure process you want to get involved with.

Austin Foreclosures What Type Will You Buy?

By: Robert Hernandez

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