Short Sales, Foreclosures, REOs - What are the differences?

Every home owner is familiar with the concept of foreclosure. We all know the importance of making the mortgage payment, lest the heartless, mustache-twirling banker show up at our doorstep to kick us out of our home. But what about a Short Sale or a bank-owned property? What are the differences? Are they really bargains that you should consider snapping up as investment property?


Short Sales are much more common with the recent decline in home values. Some sellers find that the current market value of their home is less than what they owe on their mortgage. This only becomes a problem when and if the owner has to sell now. A Short Sale occurs when the lender agrees to accept less from the sale than the full amount owed on the loan. The owner is still involved at this point, but the bank takes control of the sale. A Short Sale is an attempt to avoid actual foreclosure and the potentially devastating financial consequences associated with it.

If the home does not sell before the deadline set for foreclosure, then it goes up for public auction. These auctions literally take place on the County Courthouse steps each week. Buyers must pay cash and properties are sold “as is.” If buyers want to inspect the property, they must do so before the sale. The buyer also assumes responsibility for any liens on the property, known or unknown.

If the home does not sell at the foreclosure auction, the bank takes back the deed and the property becomes an asset of the bank. This is known as an REO (Real Estate Owned) or bank-owned property. The bank then puts the house back on the market, usually at a price that is somewhat below market value, in order to ensure a quick sale. By this point, there is often significant deferred maintenance on the home, making it difficult to determine whether or not it is truly a “good deal.”

Want more detailed information? Give me a call at 206-708-9800.

I am a Certified Foreclosure Specialist, and I'm here to help you.