Very often when agents stop by a bank owned property that I am listing, I receive the question “Is this a short sale?”. Despite the fact that I say in agent remarks that ”this is not a short sale”. Bank owned properties are actually significantly different than short sales – in all the best ways. While I love bank owned properties, I honestly can’t stand short sales.
By definition, a short sale means the owners are selling the property for an amount less than what they owe the bank. The property does not necessarily need to be foreclosure (the owner could be making payments while listing the property), but in the majority of cases it is in the foreclosure process.
Because any offer for the property would mean the bank would have to accept less money than the current loan amount, the bank must approve any offers. In order for the bank to do this, it often takes a significant amount of time and multiple layers of the bank bureaucracy to approve.
More often than not, even if your offer is accepted by the sellers it is not accepted by the bank. Most short sales fall through and the home winds up being foreclosed. In fact, there has been debate that some unscrupulous agents have been listing short sales they know will never be approved by the bank strictly for the exposure and marketing. This is one reason why many selling agents do not like them – the selling agent does a lot of work to get the deal through and their clients wind up disappointed and the agent unpaid.
The other big negative with short sales is the Distressed Homeowners’ Law in Washington State. For the exact details of this law, it is best for you to consult your attorney but to put it in simple terms if the home is in the foreclosure process (the sellers have missed a payment) and you buy the home, you open yourself up for future lawsuits if the sellers feel that they were taken advantage of. This also applies to your agent – which is another reason why many agents prefer to avoid short sales.
A bank owned home, on the other hand, has already gone through the foreclosure process and has been seized by the bank. The bank now wishes to sell the home and thus it is very similar to any other sale except the seller is a bank instead of an individual.
If you put an offer on a bank owned home, the bank must approve the offer. Sometimes a bank sells a property on behalf of another bank, so that bank must also approve it. Still, approvals are relatively quick compared to short sales. While three months is not uncommon for hearing a response for short sales, with bank owned properties most decisions are made within two weeks. Even two weeks is a bit on the long side. In my experience decisions usually take less than a week.
The Distressed Homeowners Law does not apply to bank owned properties. Again, you are not buying the property from the original sellers but from the bank itself.
Many people think they get a better deal with short sales, but in my opinion bank owned properties are usually a bit cheaper. For example, some of my clients once put an offer on a short sale property. They put an offer of $430,000 – which was accepted by the sellers but never accepted by the bank. Several months later after the home was foreclosed it wound up selling as a bank owned property for $405,000.
This is a general trend that I have seen. I must admit that it doesn’t seem quite rational. It would seem better for the bank to sell the property for more earlier, but in general it seem like the banks tend to prefer to foreclose on the property and then sell it for less.
I hope this gives you a better understanding of the differences between a short sale and a bank owned property. Please note that laws regarding short sales properties differ between states. However, in general it is almost always a better idea to look at bank owned properties compared to short sales.
