What is FORECLOSURE?

I will try to explain what a short sale/auction/REO is.

A foreclosure case contains of 3 steps: Pre-foreclosure - auction - sale of property after auction by the one who now owes the property (this will mostly if not always be the bank who has the loan in the property)

The pre-foreclosure step takes minimum 4 months from the moment the homeowner (who has not paid his mortgage, taxes or HOA for several months) receives a letter telling him that his house is in foreclosure.

The homeowner can decide to try to sell the house or he can just do nothing and the bank will take over the house.

If the homeowner tries to sell the house it will mostly in this time be a Short Sale meaning that the homeowner owes more than he can get for the house. Then he will ask the bank to cover for the difference and that is what takes time. The bank will examine everything (why the homeowner cannot pay, maybe a loan modification can be necessary, maybe the bank can come up with another solution to help etc.)

A homeowner can also be forced to sell of other reasons, for example divorce or relocation. The sale can still be a short sale as the homeowner might owe more than he can sell for.

A short sale can be more or less complicated. If there are more loans/leans in the house it is more complicated as all the involved parties have to agree to the short sale.

To start a short sale, a listing agent has to have an offer on the property or the bank will not receive any papers. Therefore you will see low prices on short sale as the listing agent has to have an offer on the house. Then the listing agent can start sending in all the many, many papers from the seller and the buyer (The seller has to give several years of tax papers, bank statements and paychecks together with an explanation. The buyer has just to give the offer, approved letter from bank and deposit check).

As the bank has a lot of short sales to go through it can take forever to get an answer. (many months). Buyers will of that reason often give offers on many properties in hope to get one of them.

Auction is the real foreclosure. Investors or buyers could buy here but the start bid will normally be the amount the bank has in the house and nowadays it will be a high amount. The bank (lender) will take the property back.

REO means Real Estate Owned property means the bank owned property. The bank that has got the house back at the auction will now take action to sell the house. The bank will sell the house as-is and they will not take responsibility for anything in the house and not do repairs (though they sometimes paint the house inside and put new carpet in). They put a low sales price and are inspecting many offers. The sales price will normally be higher of that reason. The buyers will get a fast answer.