There are several common types of "foreclosure" sales buyers can find excellent deals on, and many common misconceptions. Here is how the process works.

From the day a person stops making payments of their home, they are in defualt of their mortgage. They tyically get a letter from the bank notifiying them that they are "accelarting" the mortgage and will foreclose on the home if the home owner does not catch up on payments. It will take 10-12 months from that point before the bank will actually foreclose on the home.

Faciliting the foreclosure is the Sheriff, as a foreclosure is a legal action. The house will be seized by the Sheriff, evicting anyone still living in the home, and sold at auction at the courthouse. This is known as a the "Sheriff sale."

The bidding begins at 2/3rds of the appraised value of the home. ($100,000 value = $66,000 opening bid). The bank will bid up to what they are owed on the house in order to buy it back so they can sell it and recover their losses - since we're in a declining market, more often than not, the bank is owed more than what the home is worth. This is one of the reasons why the sheriff sales typically are not the best deals in the marker place - the bank sometimes overpays to purchase these homes and then will list them for sale as a "foreclosure" with a much more reasonable price. From the time someone stops making payments, to the time the house becomes available for sale as a "foreclosure" is typically anywhere from 12 to 24 months. These properties range from "move in ready" to "knock it down and start over."

Typically, the more work needed - the better the deal. Where these properties make sense for a first time buyer: the house at 123 ABC St. sold for $180,000 in 2005 as a new build. The bank has foreclosed and and today's market value is around $130,000 - however because the house needs new carpet, paint, drywall repair and appliances - the bank has listed it for sale at $100,000. In this example, the buyer will put $7,000 into the property to make it the way they want it, but they are paying $30,000 less than the fair market value - in a sense, the buyer just made $23,000 buying this foreclosure. This scenario is not far fetched, however, many buyers are looking for the same great deal so when that property hits the market, it typically will sell quickly.

People ask me all the time: "What's the diffrence between a HUD home and a foreclosure?" The answer is: not much. The diffrence between the two types of distressed sales os what type of mortgage the previous owner had. If the owner had a conventional mortgage and stopped making payments - it's a "bank owned" or "foreclosure" sale. If the previous owner had an FHA mortgage, when the payments stop and the property is auctioned, it becomes a "HUD home". The only real diffrence is in the bidding procedure. Where on a foreclosure, we make an offer on paper like any other house, on a HUD home, we enter our bid online. Those who are going to occupy the home as their primary residence get first "dibs." HUD will only look at offers from owner occupants the first 10 days the home is on the market. Investors are able to make bids on day 11.

A short sale is where the bank agrees to take less than what's owed on the mortgage to sell the home before the foreclosure takes place. Most people, agents included, think that how much is owed on the house is the most important number. This is flat out wrong. The most important number is "what is the home worth." Knowing how many mortgages is important as well. For example, if there are 3 or more mortgages – the short sale will be next to impossible. If there are 2 mortgages – it will be a challenge but it may be doable based on the circumstances. If there is 1 mortgage – home run. Unfortunately, their is a lot of bad information out there on short sales and as a result most agents don't know how to work the sale properly. I will do what I can from my side, but I warn every buyer up front about this, we are at the hands of the sellers Realtor®. Short sales also take the longest to buy, ranging from 60-180 days for the bank to agree to the sale.

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