With the housing recession in its 5th year, the expansive Lake Geneva area property inventory and record-low mortgage interest rates have presented us with the best buying window in over 50 years.  As we all know, a significant percentage of homes and condos listed for sale today in the Lake Geneva, Wi area are the result of delinquent mortgages, resulting in ‘short sale’ and ‘foreclosure’ status; while buyers have the opportunity to buy many of these distressed properties at bargain basement prices, the process and terminology can be frustrating and confusing. There are major differences between the two types, and a little knowledge coupled with realistic expectations can make the process from contract to closing much smoother for everyone.

SHORT SALE.  A short sale is a property that is still privately owned, but, because of falling property values, is worth less than what the current owner owes the bank on his mortgage.  In other words, the bank would be ‘shorted’ on the proceeds of a sale, and would have to be willing to accept the discounted payoff and release the lien on the home so that it can close. Banks are sometimes willing to accept this as an alternative to foreclosure because it can mitigate additional fees and costs to both creditor and borrower.  The owner of the property must be able to provide the lender with proof of his inability to repay the difference with a hardship letter, backed up with other financial documentation, before the lender will approve the sale.  If there is only one lender involved, the process can be simple.  If there are ‘junior lien holders’, such as secondary mortgages, home equity lines of credit, or any other special assessments or delinquencies, it can be very complex since everyone involved who is asked to take less than what is owed has to approve the sale and the shortfall.  An Offer to Purchase is submitted to the current owner, who may accept it, but is also always made contingent upon the lender’s acceptance.  Since all of this can take a long time, buyers must give ample time for a response and realize that it can take from three months up to a year to close on the sale.

FORECLOSURE.  When a property is being sold as a foreclosure, or REO (Real Estate Owned property), that means that it has gone through a legal repossession process and is now bank owned.  After an owner/borrower becomes delinquent on his mortgage payments, the lender/bank can employ several methods to take back legal and equitable title to the property, since it was the collateral for the loan.  Once title has transferred to the lender, the lender will usually list the property for sale through a local real estate agency.  The agency works with the lender/now owner to determine a price that reflects local market values, but also is discounted enough to attract buyers.  A buyer then works with an experienced real estate agent of his choice to complete and submit an Offer to Purchase directly to the lender/now owner.  There are often multiple offers on REO’s, because of their attractive price points, and buyers will have to be able to show pre-qualification by a bank up front and be ready to make their best offer, since the negotiation period is accelerated more than in a normal sale.  Since the lender/ bank now owns the property and has already approved the asking price, the advantage is a faster response and a faster, more dependable closing.

Both short sales and foreclosures/REO’s in the Lake Geneva area can be bargain buys, but require patience from the buyer and a real estate agent trained and experienced in what can be a complex process.  Your agent must have a sound knowledge of each situation and property, be able to provide you with realistic expectations, and be organized and tenacious enough to tackle the research, extensive forms, and details needed to make it a successful experience for you. I have had on-going, in depth training in assisting buyers with these types of properties, and can help you find and negotiate the seamless purchase of your next home.