Understanding Short Sale, Foreclosure & REO Property
Definition: a real estate transaction where the amount owed under the liens or encumbrances on a property exceeds its fair market value, therefore the Lender is asked to take less than owed... hence a “short sale”.
- The owner is the “seller” of the property even though the sale cannot be completed without the approval and release of liens by ALL lien holders.
- Lenders sometimes agree to the Short Sale procedure in order to take a calculated loss and avoid the lengthy and costly foreclosure process.
- A Short Sale is usually actively listed for sale.
- Offers are presented to the Seller and upon their approval are then submitted to the Lender for approval. This can be a lengthy process and could take up to 6 months!
- The approximate timeframe to complete the process and physically close on a Short Sale property is typically 3-9months.
Definition: Process where lien holder has the property sold at Public Trustee’s Sale on the County Courthouse steps to satisfy unpaid debt secured by property.
- When a borrower gets behind on their payments by 90 days, the lender sends them a "Notice of Election and Demand" or "NED" which officially starts the Foreclosure process.
- Owners that have received an NED can list their property for sale. Buyers can only purchase the property as a traditional sale up until the day of the foreclosure sale.
- At the foreclosure sale, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale.
- Foreclosure property can be purchased, sight unseen, by the public if they bring cash to the court house steps and are the highest bidder.
- If there are no bids higher than the opening bid, the property will usually be purchased by an attorney for the lender.
- Foreclosures do not take place as a typically listed transaction, as an REO or Short Sale would.
**For more information on HomeOwner Consequences with Foreclosures and Short Sales please see the link below:
Foreclosure vs. Short Sale Homeowner Consequences
Definition: The lender has completed the foreclosure process and now owns the property.
- REO properties can be actively listed For Sale and the Lender is the “seller”.
- The timeframes for responses from the Bank (Seller) are usually shorter then that of a “short sale” but longer then traditionally listed properties. 30-90 days to close.