Big Difference between a Short Sale and a Bank-owned Home

It seems there’s quite a bit of confusion about how short sales and bank-owned homes (REO) differ.

Here are some of  the crucial differences...

“Many are under the impression they are the same thing, but these two types of property sales are completely different.

A short sale is when the homeowner owes more on the mortgage than the home is currently worth and lacks the funds to make up the difference, but needs or wants to sell anyway. The homeowner may or may not be facing foreclosure. In a short sale, the lender (mortgagee) must agree to the loss between market value and the balance on the mortgage. By doing so, the lender agrees to release their lien to the property so that the house can be sold and title can pass to the new owner free and clear. In a short sale, the lender is not a party to the sale or owner to the home in any way. The lender does not hold the power to decide who the house must be sold to, nor are they consulted as to the terms of sale. In a short sale the lender simply agrees to approve the short payoff, or not. A short sale is actually very similar to a regular sale except a short sale has an additional contingency for short sale approval.

A bank-owned home, or REO, is completely different. If a home is bank-owned, the property has gone all the way through the foreclosure process and is now owned by the lender. In a bank-owned home sale, the lender is the seller of the property. As the seller, the lender is a party to the transaction and makes all the decisions regarding terms of the sale. Usually an asset manager is assigned to handle the home sale on the bank’s behalf. This type of sale is also very similar to a regular sale, except the owner of the home is a bank, and not an individual.

If, as a homebuyer, you plan to pursue these types of properties, it is very important to know the difference. When being represented by an agent, it is even more critical that your agent knows the difference. Not all do. Make sure to ask a lot of questions when choosing an agent to represent you in these types of home purchases…”