Foreclosure, Short Sale, and REO Listing are all terms that commonly found on real estate listings and are assumed to be similar, but are actually quite different. A real estate foreclosure is the forced sale of a property by a mortgage lender resulting from the default of the borrower on the loan payments or other terms of the loan. In Texas, real estate foreclosures are auctioned on the county courthouse steps on the first Tuesday of each month. Foreclosures, are almost always purchased at the courthouse by the bank or mortgage company that owns the defaulted mortgage by bidding in the loan amount that they are already owed. The lender uses the foreclosure as a way of passing title from the property owner to the mortgage lender.
After the foreclosure, the foreclosed property is typically owned by the mortgage lender and is referred to as a REO. REO stands for Real Estate Owned by the bank. Most foreclosed homes that are marketed as foreclosures are actually REO listings.
A short sale is a real estate listing where a homeowner is attempting to sell a home that is worth less than the amount owed on its existing mortgage with their mortgage lender accepting the loss. The homeowner’s mortgage holder must approve the sale.
Foreclosures are not commonly purchased by the typical real estate purchaser when they are auctioned on the courthouse steps. REO listings are commonly purchased by individuals and investors. Short sales are becoming more common and are typically purchased by investors due to the the more lengthy process involved in their purchase. The normal time needed to close on a REO listing is between 30 and 45 days. A Short Sale can take between 60 to 120 days to close on due to the need to have the mortgage holder approve the contact and process the transaction. Most short sales are purchased by investors and owner occupant purchasers are not willing to wait this long to close on their next home.