Just What Do The Terms REO & Short Sale Mean?

What is an REO?

An  "REO" is a commonly-used acronym for "real estate owned" by banks.  Instead of an individual person or persons owning the property as in a typical resale transaction, a bank owns the property.  The bank typically acquires title to its REO properties through the foreclosure process.  However, REO properties may also be acquired through other means, such as a deed-in-lieu of foreclosure, tax sale, or corporate housing.

Currently our local market, in certain price ranges and locations, is heavily weighted with REO properties.   Some of these properties can be quite the deal, many need some amount of elbow grease to bring them back to their glory days, but as I said they can be excellent opportunities.   An REO transaction will be different than a traditional transaction between an individual seller and a buyer.   Some of the differences may be shortened contingency time frames, limited seller disclosure requirements as well as possible delays in closing.   They can be a frustrating transaction on the buyers part but will eventually close escrow and again offers todays buyers some advantageous value opportunities. 

REO's will sometimes be referred to as "Bank Owned Properties" or Forecloser Properties and are different than a "Short Sale Property".

What is a Short Sale?

A short sale is a transaction in which the seller is not a lender but an individual person or persons who still own the property.   In a short sale the lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan.  A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender's damages.  Like a deed in lieu of foreclosure, this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report. 

Short Sale Transactions often have their own pitfalls such as extreme time delays for lenders to make a decision on whether or not to agree to a short sale.   There are also many specifics regarding the property, the current loan(s) on the property and the sellers that must be met in order for most lenders to agree to a short sale.   These type of transactions are NOT for the faint of heart and can become quite frustrating for buyers.    A large number of short sale properties fall out of escrow due to buyers becoming frustrated with the lengthy process and or locating another listings that appears to be a better fit and or will be less time consuming to close.