When we hear about foreclosures, short sales, HUD homes, REOs, what do they really mean?
When a property is in pre-foreclosure, it means that the property owner is behind in the monthly payment. It's not a matter of being late in payment by a week, or a few weeks. Those can still be paid off with a hefty interest, of course. When a homeowner is behind in payments for several months, and the lender has sent a notice of default (NOD), it is classified as a pre-foreclosure property. During this time, a homeowner can pay off the payments in arrears, the interest, and the attorney's fees, but more often than not, the lender will demand the full loan payment.
Since most homeowners cannot pay off the whole loan, the property enters the early stage of the foreclosure process. Illinois is a judicial state, meaning the process goes through the courts before foreclosure happens, it could take at least one year before a property goes into foreclosure.
Once the foreclosure process has run its course, the bank takes possession of the property legally. The property is classified as Real Estate Owned (REO). Don't know why it's not called bank owned though. The bank can now sell the property to a ready, willing, and able buyer.
HUD homes are real estate owned by the Housing and Urban Development. When a homeowner borrowed the loan from Federal Housing Authority (FHA) and the homeowner defaulted, it goes through the foreclosure process like all other foreclosure cases. The difference is the entity that now owns the property is HUD instead of a bank. HUD homes are sold through the HUD website, with the help of a real estate broker/agent. A HUD home can also be listed on the Multiple Listing Service (MLS) through a real estate broker.
There are properties bought with Veterans Administration (VA) loans. They become VA homes.
What about short sales? Short sales are not ordinary home sales. Due to the downturn in the economy, the housing market collapsed, causing home values to go down. Homeowners find themselves owning properties that are valued much less than their loan balance. When the homeowner tries to sell the property, it's sold at a value less than the loan. The lender decides whether or not the property is sold at a lesser value. If lender accepts the sale, the bank absorbs the difference (loss), though it's not as simple as writing the loss off, since the lender can still go after the homeowner for the difference after the sale. Homeowner might still be responsible for the property tax, for example.
Hope this helps. Use the Search function for finding foreclosures, short sales, REOs, HUD and VA loans in Southwestern Illinois. Contact me if you're interested!