Most of the folks I talk to every day are pretty real estate savvy. However, it seems that in the past year or so (since the market has gone crazy...) some new language has surfaced that not everyone is familiar with. Here are the terms I get asked about the most and what they mean in today's real estate market.
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. This process can take a lot of time. If you are submitting an offer on a short sale property, expect a 2-4 month time frame and have a lot of patience.
The legal process by which an owner's right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt. Auctions can be conducted by the county or by a company that the lender has hired to handle the auction. Auction notices have phone numbers that you can call to get more information on where the auction will take place, what type of funds are approved, etc...When my clients have questions about auction properties, I do a search on the property, pull up the title report to examine any liens, etc...on the property and call the party handling the auction to get the best information.
Real estate owned or REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. After repossession and the property becomes classified as REO, the bank will go through 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 real estate broker.
So in practical terms, when I look on the MLS to provide my clients information on homes that are listed on the market, there are categories to tell me who is selling the home. I can see if it is a short sale or an REO.
If there are 2 properties that fit my clients' needs, but one is a short sale and another is a "clean" seller, I will know how to set my clients' expectations with regards to what the offer process will be like with each seller.
There are some shocking deals out there right now, it is important that you know what you are getting into when making an offer on a property. Have your bases covered and work with someone who knows what they are doing!!