Short Sales, REO, and Distressed Properties: Mortgage Financing Considerations
Short sales, bank-owned (REO) properties, and estate sales have unique financing timelines, seller addendum requirements, and property condition issues that affect lending.
What You'll Learn
- How lenders view short sales and REOs
- Addendum requirements (bank addenda and HOA addenda can conflict with loan terms)
- Property condition requirements for FHA and VA (MPRs)
- Cash-only vs. financing-eligible properties
- Timeline differences for distressed transactions
The Full Explanation
CTC Processing reviews bank addenda on all short sales and REO purchases for provisions that conflict with FHA/VA requirements or standard lender terms. We flag these to the LO before the file is submitted.
Frequently Asked Questions
Can FHA or VA loans be used on short sales or REOs?
Yes, if the property meets MPR standards. Many distressed properties have condition issues that trigger MPR conditions. Bank sellers rarely agree to make repairs on as-is sales. Conventional financing is often cleaner for REOs.
What makes a property cash-only?
Severe condition issues (structural problems, no utilities, fire damage, uninhabitable), title issues, or HOA-related issues can make a property difficult or impossible to finance. Some REOs explicitly state cash-only in the MLS remarks.
Do bank addenda ever conflict with FHA/VA requirements?
Yes — bank addenda sometimes try to waive the FHA Amendatory Clause or VA MPR requirements. These waivers are not legally valid under FHA/VA guidelines. CTC reviews addenda for conflicts on every government loan file.