Foreclosure, Short Sale and REO…What does it all mean? What are the differences?
Everywhere you look, listen or try not to listen you hear the terms foreclosure, short sale and REO in reference to real estate. So many people toss this jargon around without really knowing the difference and so many more hear it and are afraid to ask what it all means. Are they the same? Are they different and if so, how are they different? What about loan modifications? Today, you get the answers.
What is a short sale?
“A short sale is a real estate transaction in which the sales price is insufficient to pat the liens encumbering the property and sale costs, but the seller is unable or unwilling to pay the difference.” – Michelle Lind, AAR General Counsel
What is a REO(real estate owned) or foreclosure, and what is the difference?
“Real estate owned (REO) are properties that go back to the mortgage company after an unsuccessful foreclosure auction.” -Bob Corcoran
These are often referred to as “bank owned” properties.
What is a loan modification?
“A loan modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.” – U.S. Department of Housing and Urban Development
Now you know the jargon. But what does all of this mean?
Foreclosures and short sales mean you will lose your home, unless you are the buyer. If you are the buyer, you will be purchasing a home at a rather large discount. Also, you will have a tax consequence with your short sale.
If you qualify for a loan modification, you will be able to stay in your home and have the payments become affordable. Not everyone will qualify for a loan modification and it is up to the discretion of your lender. It is a very lengthy and involved process, but worth the effort to be able to keep your home.
I’m so grateful that I read your blog, because I am one of the people who is really confuse if what short sales, foreclosures and REO is. Now, after reading your blog, I understand what this 3 terms mean. Thanks for writing this great blog!
Thanks for sharing these terms!
There are some great opportunities out there for buyers in today’s market. In Charleston SC, I get calls daily from buyers interested in putting an offer in on a “short sale” or a “bank owned” property. As a “buyers agent” with experience in short sales & REO properties, I really explain the process a buyer and prepare them for a potentially drawn out and frustrating experience. They risk spending money on inspections etc….. then have the deal fall through at the last minute. If the buyers have the patience and the property really suits their needs then it might make sense to move forward. If the buyer needs to coordinate the closing of the short sale property with the closing of the sale of their current home they could be in for a bumpy ride. The short sale lender does not care if all your belongings are in moving truck and your dogs are in a kennel.
Dan,
Unfortuantely in today’s market, there are bumps with the lender on a conventional sale. I have seen lenders deny loans on closing day and not care that the seller has packed up is ready to move on.
You make some great points on the difficulty and frustration in making the purchase of a distressed property. The media makes is sound like the greatest thing ever and never really understanding what it takes.
Thanks for your input Dan.
Susan
Thanks for sharing all your thoughts and experiences. I did not know the meanings of these terms until now.
[...] coming into the marketplace is decreasing. Although the banks are carrying a large inventory of REO (bank owned) properties, some are using other vehicles besides putting them on the open market [...]
You Never Know It Is The Bottom Until You Are On Your Way Back Up | The Chicago 77 said this on June 23, 2009 at 8:13 am |
hh.. interesting