What is the difference between a foreclosure, REO and short-sale?
Foreclosure is the process that begins when a homeowner receives a notice of default, this is usually after a couple of missed payments. At this point the property owner has the option to bring their account current and avoid foreclosure. If this is not possible, they may decide to list their home for sale.
The term short sale refers to a property that is in foreclosure but is sold prior to auction for an amount less than what is owed to the lender.
If a sale is unsuccessful and the owner is unable to bring their account current, their property will be sold at public auction.
There will be times when the outstanding balance on a home is so high that nobody will be willing to offer the minimum bid and at that point the home will end up as an REO - Real Estate Owned property.
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I have seen a few properties on your site that say that they are short sales but don’t mention anything about foreclosure.
What is the difference?
Thanks, Mike
Thank you for bringing that up.
Typically a property that is being sold short will be in the process of foreclosure, although arrangements can be made with the lender for a short sale prior to a homeowner even missing a payment.
In this case the owner knows that at some point (say six months from now) they will not be able to continue making their minimum monthly payments because of some financial problem but continues to keep their account current while attempting to get their home sold.