A frequent question we're asked here at The Phoenix Agents is about the process a home goes through when it transitions from being a short sale to a foreclosure. Here's the skinny.
Typically, banks and mortgage companies will allow a homeowner many months to attempt a short sale. Sellers hire a Realtor who lists the property in the regional MLS database. Showings happen. A buyer makes an offer. For whatever ridiculously silly reason, the seller's lender denies the short sale. Unless the seller can find a backup buyer in time to satisfy their lender(s), the home goes to foreclosure auction.
What happens at the foreclosure auction?
As you can see, most homes are not "sold on the court house steps" to an investor. They're taken back by the mortgage lender/bank who held the former homeowner's original first mortgage, and the home is now an REO, or Real Estate, Owned. The mortgage lender/bank then hires a Realtor to list the property for sale in the regional MLS.
This information applies only to metro Phoenix, Arizona where we work as residential realtors. This article was published in May 2011. If you're reading this from another state or long after publication, please consult a professional in your town or contact us for updated information.