It's possible to get  really good deal buying a foreclosed-on home, but not as it was in days past.  Too many of them don't have any equity and they tend to be trashed.  It is more likely to get a good deal on a short sale home.  Believe me, there's a huge selection. Not all are good deals, but some are and they're worth taking a run at.

Real estate agents tend to avoid doing short sales for several reasons. First, around 40% of short sale purchase offers don't close, which means the agent does a lot of uncompensated work.  Second, the seller's lender has to approve the transaction, a process which usually takes 60 days and sometimes longer.  It's quite stressful for the buyer, and with an offer outstanding on the short sale property, he/she feels constrained in looking for other homes in the mean time. And perhaps most irritating is the approving lender's right to accept a higher offer even after accepting the first one.

Why do so many of these offers not close? Lots of reasons.  Lenders' Loss Mitigation Departments are overworked. Sometimes, the listing agent is not up to speed on the paperwork involved, and when even a small error occurs, the whole package is returned and has to be re-initiated. Another reason I discovered a short time ago is the buyer's agent not making a strong case for approval of his/her client's offer.

To buy a short sale listing, the following is critical: (1) Have a pre-approval letter from your lender, not a pre-qualification letter. This means furnishing pay stubs, tax returns, the whole bit.  You must be able to close within a few days following third party approval. (2) Have your agent prepare and attach to your offer a Short Sale Addendum. It will allow you to withdraw your offer under certain conditions (REMAX' lawyer has prepared a company Short Sale Addendum which protects buyers even more than the standard form). (3) Your agent will have to do a thorough CMA--hard to do in a time when there aren't many recent sales--and include it with the offer, along with a strong pitch.  Whoever is on the lender's side reviewing the offer doesn't know our area from Hilo, so the agent has got to make a really good case.

But that's the "inside baseball" of the process.  It can get worse.  If you think real estate is chock full of unfamiliar terminology, wait until you wade into short sales or REO purchasing.  What if there are two loans on a property? What if the first trust deed is okay but the second one files a default notice? What happens to the second trust deed whe the first mortgage holder files the notice? What happens if the property has a large second and a small first? Trustee? Beneficiary?

Sheesh!