A distressed property is any property whose owner is in default on the mortgage. If you’re on the market for a home, and you’d like to get a deal, a distressed home is an option to look into. Banks want these homes off the liability column of their books, so they usually list them for comparatively lower prices.  But, there is a limit to what you can save, especially as competition for dirt cheap houses tends to spark bidding wars among hungry buyers.  Distressed homes aren’t easy to deal with, either. They are sold “as-is,” usually need extensive repairs, and require a lot of time and paperwork.



Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens.

The foreclosure process can end one of four ways:

  • The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
  • The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
  •  A third party buys the property at a public auction at the end of the pre-foreclosure period.
  •  The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender)


A short sale is literally the sale of a home for less money than is currently owed the lender on the outstanding mortgage being foreclosed on.

Financially speaking, the home is “upside down.”  A short sale is a legitimate way for stopping the foreclosure process.  In order to  successfully conduct a short sale, the foreclosing lender must agree to it, essentially agreeing to take less money than it is owned on the mortgage.
Short sales usually happen in a buyer’s market when homes sales are dragging, home values declining and there’s lots of inventory.  In a short sale, the homeowner needs to demonstrate to the lender hard numbers that will lead the lender to conclude that selling via a short sale is going to benefit them more than the amount they would garner from foreclosing on the property and then selling it as an REO.



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