Difference Between Short Sales and Bank Owned Homes

Currently there are 3375 homes for sale in Ventura County. Of these, 901 are short sale homes and 569 of them are bank owned/REO homes (source: Ventura County MLS).  The primary cause for the increase in short sales and bank owned homes in Ventura County can be attributed to the fact that between 2003-2006 lenders offered a loan to nearly anybody with a pulse allowing many home buyers to fall for a more is better approach, and a government who sat on the sidelines watching the whole affair.

However, as the lending practices return to more conventional methods of evaluating debt-to-income ratios, home buyers who are truly qualified to purchase a home in Ventura County are peeking at Ventura County’s real estate market.

As the current home buyers look at the real estate inventory in Ventura County they can’t help but run into a few homes for sale that are either a short sale or a bank owned ( also referred to as REO) homes.

How Short Sales Work:

In a short sale scenario the home owners still hold title to the property.  In many cases the home owner might even still reside in the property.  In a short sale the home owner has defaulted on their mortgage loan and the lender agrees to a pay off amount that is less than what the home owner owes on the property.  In order for the home owner’s lender to consider a short sale the home owner needs to provide a series of documents to their lender.

As potential home buyers submit their offers, the home owner still has to sign off on the home buyers’ offers.  However, the final decision on what the home sells for and which offer is accepted is left to the lender.

Since many lenders are overwhelmed and understaffed, many of these offers on a short sale home can sit at the lender’s Loss Mitigation Department for 3-4 weeks or even 2-3 months.

In many cases, home buyers get tired of waiting for the lender’s reply and withdraw their offer.  In such cases when the lender comes back with an answer, the next qualified home buyer’s offer is studied. If the next home buyer has withdrawn their offer the lender looks at the next qualified home buyer’s offer, and so on and so on.

Since the home seller is still partially involved in the sale of their property, when escrow procedures start the home owners are required to release all necessary disclosures to the home buyer.

In some instances, if the lender determines that there is enough money to be made from the sale of the house, the lender might even consider the home buyer’s request for repairs.

How Bank Owned or REO Homes Work:

The term REO Homes (Real Estate Owned) is another way of saying Bank Owned Homes.

In a bank owned sale the lender is the institute that is selling the home. The lender acquires the home usually after the whole foreclosure process or after the home owner gives their lender title to the property in order to stop the foreclosure process. The lender owns the home and most likely has never seen the home. The individuals who resided in the home are long gone. This means the home buyer will NOT receive any disclosures about the property.

Since the lender owns the home, the time period to wait for an answer from the lender is much shorter than a short sale.  Usually lenders get back to the home buyers within a week after an offer is submitted.

In Ventura county, bank owned/REO homes that are in good neighborhoods and are kept reasonably well maintained tend to receive multiple offers.  It is common for a bank owned home to sell above the lender’s asking price!

So What Is The Difference Between Short Sale and Bank Owned Homes?

• In a short sale situation the home owner is still the seller where as in a bank owned or REO home situation the lender is the owner of the property.
• Home Buyers will NOT receive any disclosures from the lender in a bank owned/REO sale.
• No body really knows the period of time for the lender to get back to the home buyer on a short sale property.
  • Remember after the lender accepts the home buyer’s offer, an escrow is opened which by itself could be another 30-60 days (based on what the lender and home buyer have agreed upon).
• Sometimes in a short sale situation the lender does not reply to the home buyers offer and the property falls into foreclosure. This scenario usually happens when the lender has not received an offer close enough to their asking price.

You may enjoy these posts too:

1. To Buy Or Not To Buy A Short Sale In Ventura County
2. Making an Offer on a Bank Owned Home or REO in Ventura County
3. Ventura County Home Buyers Ask: Why Don’t Banks Accept My Pre-Approval Letter?
4. Buying A Bank Owned Home In Ventura County