Short Sales, Bank Owned and the Notice of Default Lists

More than just investors are now looking at these lists. Just a few years ago, only the hardcore investors looked at these lists for a possible way to buy a house. But, now I'm finding that more and more first time home buyers, move ups, and move downs are also looking at these lists and the competition is getting intense sometimes.

I agree that sometimes these homes can be a great deal, but you have to know what to look for and a lot of time it really is "buyer beware". The reason that it worked so well for investors when they bought homes that were in this situation, is because they had no competition for the most part and they could hammer down the banks, the home owner, or whomever they needed to for the deal.

Recently though, these deals have gotten harder to come by and in some cases people paid to much for these properties, just because it had one of these labels associated to it.

Let me explain what I mean when I think they paid too much for these properties because of a label. Have you ever paid too much for something just because of the name brand label on it and a sign in front of it that said "SALE"? Well, these lists are like a brand name with a "SALE" sign in front of it. Just because it says it is a sale, doesn't mean it is a good deal.

The problem with a lot of these properties is the owner and the bank are still trying to get full retail for the property.

First let's look at a short sale and what it really means:

A short sale means that the bank is taking less than it is owed, but that doesn't mean that you are not paying full retail or less than the bank is actually owed. Let's say the home owner bought the property for $220,000 last year and now can't make the payments. They don't want a foreclosure on their record, the property is still worth $220,000, the only problem is, they can't afford to pay the transfer taxes, real estate fees, and all more than likely, the taxes that are due upon sale. So, they go to the bank and say "Bank we need to sell our property. You are owed $220,000 the house is worth that, but we can't afford to sell it, so you will need to pay the taxes, commissions and the other transfer fees." So it is now officially a short sale, because the house is selling for full retail, but the bank is taking a loss because it is paying for all the costs of the sale. So, you really aren't saving any money and a lot of the times because people think that all short sales are deals, because of the word short sale, there are multiple full price offers. Also, unlike a house being sold by the owner, there are usually no repairs done by the bank if anything comes up in the inspection.

The next situation is the bank owned property. These are properties that the bank took back in foreclosure. The bank has no desire to lose any more money and these properties can be in the worst condition ever seen. There could be a deal, but if it is a deal, then there will also a multi offer situation driving the price up to usually more than the deal is really worth. I've seen the best of investors even get caught up in this, thinking they are getting a deal and by the time they are done bidding they have paid more than the house is really worth and they lose money. Like a short sale, the banks will not do any repairs and the house is being sold as-is. Unless you have money for repairs, be very careful about buying a property directly from the bank.

The last list is the Notice of Default (NOD) list and this list is houses that may not even be for sale, but the owners are behind on their payments. A lot of the time the people on this list are already listed and for sale on the open market. The reason for that is because they may have plenty of equity but by selling they won't have a foreclosure and they get the equity they have built up in the house over the years. Others on this list are not listed yet, but are in contact with the bank about doing a possible short sale, and as you read above, may not be the greatest deal around. Now every week, I put out a NOD list on my website that shows what homes might be available soon and sometimes my buyers contact me about a particular home on the list. I then contact the owners, if they are not already listed, and approach them about selling their home. If it is a short sale situation, I then can contact the bank, on behalf of my client, and maybe get them a deal without having to have a bidding war on the house. But, then again, this is a rarity and if you are someone looking to move in a hurry, then this isn't the option for you! I've seen this process take up to 4 months to get a home to close from the NOD list.

I hope this sheds some light on the process of buying homes that are either short sales, bank owned or on the notice of default list. If you are interested in buying a home in Oregon and would like some help through this process, I would love to help you make sure you get the best possible house for the price.



Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739