Short Sale Vs REO??
Is a short sale B4 the bank takes title from the homeowner B4 actually forclosing?
What is it when you bid on a forclosure direct with a lender on an REO? (Listed price is $100k and you bid $50k, as the house has been an REO for 6 mos)
Iv'e heard of discounting mortgages...what is that exactly?
No, and No.
A short sale is a deal where you negociate a pay off price with the bank prior to foreclosure, generally for less than what is actually owed. Ex: I am closing on a short sale tomorrow for a house appraised at 296k, but I will purchase the home for 207k. It is a good deal for everyone, since the lender can avoid all the costs of foreclosure and resale of the property and the seller avoids a foreclosure on their credit report.
REO stands for Real Estate Owned and implies the bank has already completed the foreclosure process and owns the property. When you bid 50k on a 100k house (weather it is a REO or not) it is called an offer. Generally, such offers are quickly rejected unless you provide documentation to justify your offer.
Discounting mortgages refers to lowering the payoff amount of the mortgage (or a lien). A short sale is an example of how to discount a mortgage. You can also purchase notes at a discount, where you pay less than face value for the mortgage.
-Chris
[addsig]
Let's clarify a few points.
Short sale: you, as the investor/buyer, negotiate with the seller's lender (and the seller's permission) to buy the property for less than the current loan amount. Example: FMV = $100K, loan balance = $100K, house needs $X dollars in repairs. To get this property for $70K, you will have to have the sellers sign a purchase agreement and get their written permission to negotiate with their lender to accept less than what they are owed.
REO = Real Estate Owned. The bank has foreclosured already and they are the new owners of the property. As Chris said, you don't "bid" on REO's, you make offers. REOs do not have mortgages on them.
Discounting mortgages is where you buy mortgages from the current lienholders at a discount from their face value. Example: A lienholder has a $100K mortgage, you offer them $90K for it. If accepted, you have successfully discounted this mortgage $10K and you become the mortgageholder. However, you only own the mortgage and not the property. The payor of this mortgage will still have to pay you the full $100K (plus interest), ie so discounting mortgages does NOT refer to lowering the payoff nor is a short sale an example of a mortgage discount.
Roger