Hi Elisa,

Buyers today are routinely distracted by this short sale / REO business because they think that these are somehow different than other properties for sale. This is because people are confused about the forclosure process itself, and many think that there are a lot of alternative sources for forclosure properties because of all the companies selling forclosure leads.

Put simply... all properties are just 'for sale'. Almost all REO's and short sales are listed in the MLS along with every other property for sale. Here's a simple guide to the types forclosure properties.

Short Pay or Sale: The homeowners have negotiated with the lenders to sell the property at less than is required to pay off the original loan. The lenders agree to accept the net proceeds as full payment for the loan, but there is an approval process which can add several extra months to escrow. Many transactions are not approved.

NOD (Notice of Default): The lenders record this document with the county to officially start the forclosure process. Homes in this category can still be listed and sold by the owners until the foreclosure is final. A lot of businesses are selling NOD leads to people who want to contact distressed owners directly (even though this is a matter of public record.) Other companies are selling the idea of picking up forclosures at courthouse sales (also on public record.) These strategies can be fruitful, but they're time consuming and take some homework.

Bank and Investor Owned (REOs): The owner has defalted and the lenders or their assigns now hold title. There is usually a corporate approval process, but since California has no right of redemption after the foreclosure is final, the property is essentially listed for sale by the legal owners.

With the exception of unlisted NODs, all of these other categories of properties are just for sale and are usually listed on the MLS. They shouldn't be considered a better deal than a house offered by an undistressed owner who is willing to sell at the prevailing rate.

What's really happening is that the lenders and corporate owners are willing to sell at up to 20% less than market value to clear their books and generate cash flow. The result of all of this 'forclosure' activity is that the market is experiencing an artificially low valuation and is likely to stay that way until the excess inventory of properties is sold off.

As for those 'bagain' homes that you're seeing... the money never lies. These are typically corporate sellers who have listed a property so low that it creates an informal auction. There's an initial frenzy and then the remaining serious bidders duke it out. It's an obvious ploy that genrates a lot of interest quickly and often ends up selling the property for more than it might have. Also, the public ever sees the final result so it leaves a false impression, creating yet another drag on the market and frustrating a lot of buyers.

Here's a link to a good free tool called Market Snapshot that may be useful to you. It will give you this week's housing pricing and conditions including community reports for any neighborhood from L.A. & Orange County to San Bernardino.

http://www.homeinsight.com/Widget/default.asp?VE373T7NCA0G

Best of luck.

Hi Elisa,

I would recommend that you contact a Realtor who specializes in Short sale and REO properties in the area(s) for which you're interested. The market has become very competitive, especially in the areas for which you're considering. Having an experienced Realtor working for you will put you in a better position to locate and successfully purchase the home you're looking for. Good luck!

Matt