Short Sale, Foreclosure and REO

Many consumers confuse a Short Sale Property and a Foreclosed Property. This is something that majority of consumers have difficulty between defining the two and then what is an REO? Well I thought we would look at each and get a little better understanding of the terms.

According to Realtor.org here is how they define each:

Foreclosure – the legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Short Sale – a sales transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan.

REO – is a bank owned property

In today’s economy and over the past few years we have seen increasing numbers of each of these scenarios.  It is not un-common for a homeowner to “Short Sell” their home due to a fluctuation in the market. To understand easily, if someone purchased their home at the height of the market for $1,200,000 and now comparable properties are selling for $1,050,000, they could work with their lender in trying to sell their home at a price of $1,100,000. When this is done, each offer will have to be approved by the lender and lien holders on the title of the property.

Foreclosure would be the process of the bank taking possession of the property. Auctions aren’t too typical today and rather banks will work with real estate agents to list the property as an REO. This allows the property to be sold on the market at fair market price.

The best advice is to stay on top of your mortgage and don’t bite off more than you can chew.

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