I am amazed at how many agents don’t understand these terms, R.E.O., Foreclosure and Short Pay, so I thought I should clarify.
The process a bank uses to take a home from a delinquent borrower is called the “Foreclosure process or foreclosure.” It starts with a published notice in a local paper and service to the borrower of a “Notice of Default”. This starts a process that usually takes about 120 days. During which the property would be “in foreclosure.”
During this “foreclosure” process the borrower will often go to the bank, usually with a Realtor and ask the bank to take less money than is owed, and let the borrower sell the property. This is called a “short sale” because the borrower is shorting the lender their funds. Typically the bank will be losing more than a hundred thousand dollars!
Thank your lucky stars you aren’t that investor!
This “short sale” process is fraught with issues because you are dealing with an unhappy lender/investor losing big money. If you had saved all your life and invested “wisely” and one day received a call stating that you are not only going to stop getting your regular monthly payments but that your borrower is offering half what you lent him!!! Bad day. So they often aren’t very agreeable and the battle can last for many months and not work out. After which the bank takes the house and sells it at “Trust Deed” sale. If you have the cash I can show you how to buy properties at Trustee Sales.
The bank or “Trustor” then completes the “foreclosure” at “Trustee Sale” and takes the home from the then owner and the real property becomes and REO or Real Estate Owned by the Bank. So you can see why I cringe when I see ads for REO/Foreclosures.
These are often very good deals and can go very quickly, often needing extensive repairs. But nothing like the first wave I rode after the 94 earthquake. Many of those people hadn’t made payments in years and wondered why the banks were taking their homes??
So when a property owner stops making payments, the property goes into “Default,” and notice is filed. Ninety days later they publish a sale date and time and the property is sold to the highest bidder. During this process the property is a “Foreclosure”, after the bank takes it, it’s and REO.
I hope I have clearly answered all of your questions. Your comments and questions are appreciated.
Best
Scott
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Heckuva good job. I sure apprcetiae it.