What is the difference between a short sale and a foreclosure?

If you've started a home search lately, you've probably come across listings which have remarks in the comments that say things like: "3rd party approval required" or "short sale, subject to lender approval".    You may also see something like "bank owned" or "REO" property and wonder what these terms mean.

A "short sale" happens when a Mortgagor (or the bank that has financed a house) agrees to accept less for a property then what is currently owed on it.    In a short sale situation, the property is still owned by the Mortgagee (the homeowner) and the homeowner can accept an offer on the property that is less than what he owes on his mortgage with the written approval of the mortgagor (or bank) to accept the lesser amount.   Many times, a short sale is also a pre-foreclosure property. 

A foreclosure is bank owned, the previous owners have failed to keep the agreement outlined in their loan documents and the mortgagor (or bank) has exercised it's right to "foreclose" or take back ownership of the property. 

 

 

 

Topics: mortgages