Short Sales ~ Foreclosures ~ REO’s
The most trendy buzz words being thrown around with regard to the real estate industry these days are short sale, foreclosure & REO. Although these terms are heard multiple times a day, does the general public really understand the meaning of these words? Assuming that it is understood that these buzz words relate to the housing crisis and the decline of house prices throughout the nation, here is a quick, in a nut shell explanation that should help explain the basics of each.
A short sale is the sale of real estate in which the proceeds from the sale are not enough to pay off the balance owed on a loan. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss than foreclosure. A short sale typically is executed to prevent a home foreclosure. In a short sale situation, the homeowner/debtor sells the mortgaged property for less than the balance of the loan, and based on the lenders approval, turns over the proceeds of the sale which is generally less than the full debt amount. The advantages of a short sale to the home owner are the avoidance of a foreclosure on their credit history, partial control of the monetary deficiency and it is typically faster and less expensive than a foreclosure.
Foreclosure is the legal and professional process in which a lender, bank or any other lien holder, obtains a court ordered termination of a home owner’s interest in a property. The process begins when a homeowner defaults or falls behind on their payments and a notice of default is filed with the courts by the lien holder. There are four option in resolving a foreclosure including; get current on the loan by paying all the missing payments, selling the property in the open market, selling the property at auction, or the bank repossesses the home after a sale at auction was unsuccessful. This now becomes what is called an REO or Real Estate Owned property. When the foreclosure process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs incurred.
REO or Real Estate Owned is a class of property owned by a lender or bank after an unsuccessful sale at a foreclosure auction. The bank repossesses the property and begins the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a REALTOR. Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property.