What is a Short Sale, a Foreclosure, and a REO and what are the differences??

** If you are currently in a Foreclosure process or think you will be shortly visit Don't Borrow Trouble. This website is operated by Freddie Mac and can help you with learning more about your choices as a homeowner and how to avoid predatory lending and people out there looking to scam you. **

In the current housing market these terms are widely used interchangeably by many because they don't know the true meaning of these terms. A short sale, a foreclosure, and a REO are actually 3 completely different terms but are used together frequently when talking about foreclosures.

So to start off with let's define these three terms:

Short Sale-A short sale is when you owe more on your property than it is able to sell for on the market today. An example: you took a $500,000 loan on the house and now it can only sell for $400,000, you are short $100,000.
Foreclosure-A foreclosure is the forced sale of real estate to pay off a loan on which the owner of a property has defaulted, meaning they did not make their payments
REO-A REO stands for Real Estate Owned and basically means that the bank has purchased the property back at a trustee's sale and now owns the property.

So now onto how these terms relate to each other and how the foreclosure process works:

1. Homeowner stops making payments for a certain time
2. The Trustee sends a Notice of Default to the homeowner on behalf of the lender
3. The owner now has the opportunity to become current on the loan (by paying the lender), or the owner can go through a short sale (if the lender is willing)
4. The Trustee sends a Notice of Trustee's Sale to the homeowner
5. The house is put up for auction
6. The house is either sold at auction or the bank (lender) purchases the property as an REO

Because of the many legal problems that can arise through a short sale, foreclosure, or REO purchase consult with your ATTORNEY or ACCOUNTANT before purchasing a property.

Thomas Feng, Realtor
Thomas.Feng@CBnorcal.com

Copyright 2010 by Thomas Feng, All Rights Reserved. You may reblog or republish with links back to this post.

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