Brooklyn Real Estate Q&A and Info

Thanks to the recession, these terms have become common place. Newspapers, news reports, and blogs are all taking about how to buy foreclosures, REOs and especially short sales (which seems to be the buzz word of the day).

That brings up a good question. What is the difference between a Short Sale, a REO and a foreclosure, especially when it comes to Brooklyn, New York? Well here it is in a nut shell:

Short Sale – In order to completely understand the meaning of a short sale, you need to know a couple of other popular real estate terms. To be “upside down” or “underwater” means that a property owner, whether the property is a coop, condo or house, owes more on the property then the property can be sold for at the time.

When a property is being sold as a short sale, it means that the property owner is under water and the lender has either agreed to, or will be asked to agree to, forgive the difference between what a property can be sold for and what the home owner owes.

REO and Foreclosure - I’ve lumped these two terms together because they are the same.  REO is an acronym that stands for Real Estate Owned and it refers to real estate owned by a bank after it has been foreclosed on.  That brings us to the definition of foreclosure.

A foreclosure is when a borrower fails to live up to the terms of a mortgage and the bank decides to exercise its right to sell the property at auction to recover the money that was lent for the purchase.  If no one purchases the property at auction, the property becomes an REO.

Buying a short sale property or a foreclosure is a good way to purchase property at rock bottom prices, but its not for everyone.  If you’d like more information about buying a bank REO or a short sale anywhere in Brooklyn, NY, feel free to give me a call at the number below or Click Here to email me.

With the difficulty some buyers are having getting financing, and Condos and other new constructions in Brooklyn sitting empty, rent-to-own has become an option available for some buyers. But what is rent-to-own?

The rent-to-own scenario, which is also called a “lease-option” requires a potential buyer to pay a down payment of as much as 5% of the purchase price up front and pay rent monthly while they live in the property he or she intends to buy at the end of the lease.

Part of the rent goes to the owner, and a portion of the rent, called a “rent credit”, goes into an escrow account and is later applied toward the purchaser’s down payment when he or she is ready to buy.   The price the buyer will pay for the house or condo at the end of the lease is determined at the time the “rent-to-own” or “lease option” contract is signed.

The PROS

1. Its a great way to get into a house or condo that you like now without having a large down payment.
2. It gives you an opportunity to “try” before you “buy”.
3. It gives you time to make repairs to your credit rating if its necessary.
4. The owner is obligated to sell the property to you at the price agreed upon, even if the property increases in value.

The CONS

1. If you decide not to purchase the property at the end of the lease, you loose the down payment you put into the transaction at the start of the lease, however the rent credit monies that has accumulated in the escrow account is refunded.
2. If the property decreases in value, you are required to pay the price agreed upon at the signing of the lease, even if the property is worth less.  If the property does not appraise for the amount agreed upon, you may not be able to get a loan and fail to be able to close on the deal, again loosing you down payment money.
3. If the owner of the property fails to pay the mortgage and the property is foreclosed on, you may loose all the money put into the transaction.

As you can see, there are advantages and disadvantages to purchasing property rent-to-own.  Weigh the pros and cons carefully, and if you decide that rent-to-own is right for you, find out as much as you can about the owner’s financial situation, vigorously negotiate the price to be paid, and have a Real Estate Attorney thoroughly review the lease option contract before you sign it.

For more information about rent-to-own (lease-option) properties available in Brooklyn.  Please feel free to contact me using the phone number below, or via email.

Here is an interesting article I came across on the WSJ online about seller financing.

Seller financing is when the seller of the property holds the mortgage for the buyer instead of a bank or some other lending institution. If you own your Brooklyn, New York home outright and you currently don’t need the equity from the house, seller financing might be an option for you.