Short Sale vs. Foreclosure Sale vs. REO

There is lots of interest in properties that are commonly called distressed properties, as well as concern about the number of these that keep appearing on the market.

Sometimes there is confusion about what these different properties are. So here is a BRIEF description.

SHORT SALE – when the home owner owes more than the home is worth and is in a hardship situation financially where a sale must happen (loss of job, divorce, etc.). Just because a seller WANTS to sell does not mean the lender(s) will approve, and a hardship must be demonstrated and documented.

FORECLOSURE – once a homeowner reaches a point where s/he cannot pay the mortgage and (normally) is behind 3 payments, a NOTICE OF DEFAULT (NOD) is filed by the lender. Often an owner already has the home on the market as a short sale. Foreclosure proceedings vary from state to state.

REO – Real estate owned properties (also commonly called bank owned properties). If a foreclosure property does not sell, it may be auctioned off (e.g., a trustee’s sale here in CA). If it is not bought then, the house becomes an REO that is “owned by the bank” and sold BY the bank on the open market.