This article explains the differences between Real Estate Owned (REO) versus short sale properties and the role that property preservation contractors can play in maintaining REO properties.
They are two different concepts even though both are considered distressed properties and are often advertised in the same venues.
Short Sale Properties
When homeowners are unable to meet their mortgage payments in a timely manner and consequently fall into default, the homeowner can negotiate with the lender to sell the house to pay off the mortgage, usually at a market value that is lower than the balance owed on the mortgage. This allows the lender to release their lien to the property so that the house can be sold and the title is passed to the new owner free and clear.
The lender does not hold the power to decide to whom the house will be sold nor are they consulted as to the terms of the sale. The homeowner is responsible for the maintenance of the home to qualify for the short sale.
If the homeowner lives in one of the states where the lender could sue the homeowner to collect the deficiency, the difference between the value of the short sale property and the amount still owed on the mortgage loan, the homeowner will need to request that the lender provides the homeowner with a waiver of deficiency in writing prior to the short sale.
Typically, once the bank takes full possession of a home after going through the complete foreclosure process, the home becomes an REO property and the bank is the legal seller who makes all the decisions regarding terms of the sale.
As it costs money to manage REO properties, the lender is usually very motivated to sell REO properties quickly so they will remove any liens on the title and handle all property maintenance issues that may slow down the sale of the property.
Property Preservation Contractors
Property preservation contractors play an important role in maintaining REO properties for banks and property management companies, following guidelines established by the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA) and Veterans’ Administration (VA). The lenders contract this work out so that the property is adequately maintained to protect its resale value.
Contractors will clean interiors, do necessary repairs, secure the property from vandalism and maintain exterior landscaping. They are usually the ones that take photos and provide written descriptions of the property and communicate any maintenance issues to the lenders as needed.
About First Freedom Preservation, LLC
For nearly two decades, First Freedom Preservation, LLC. has been proudly serving the Baltimore, Greater D.C. and Philadelphia areas. We offer quality management and maintenance services for every property in your REO portfolio including providing inspections and code compliance, top-quality repairs and marketability upgrades, and accountable, transparent systems allowing you to track spending and project deadlines.
Call us today to discuss your REO property management needs.