There is a lot of confusion in what is the difference between a Short Sale, Foreclosure, and a Bank Owned Property (REO).

I will try to just touch on the highlights of all three and what you should know to help you make an informed decision on which one is best for you to purchase.

Short Sale

This is when the home is worth less than what is owed on it and the owner is asking the bank to accept less as a payoff. It usually takes from 6 to 8 weeks to hear back from the bank after making an offer. There are usually tax liens and other junior liens on the property that will usually be the buyer’s responsibility to pay off in escrow. There is less of a possibility that you can negotiate that the bank or the seller will pay any of the costs. Not for investors to purchase because of the California equity sales law. (More about that at a later date).

Foreclosure

Foreclosure is a legal process that is used buy lien holders on the property to take possession of the property to satisfy a debt. This is the famous sale on the courthouse steps; the main problem with this is you will be bidding against the bank. The opening bid is always equal to the amount of the foreclosed on deed of trust. The problem with this is if the home was worth this amount the owner would have sold the home instead of going into foreclosure.

Bank Owned or REO Property

This has the possibility for buyers to pick up property at distressed prices, the bank already owns the property and all junior liens have been taken care of through the foreclosure process. All items are negotiable, as with any private sale, price, closing costs. The better prepared you are for this the better deal you will get. I recommend using a Real Estate professional that is experienced in Making offers on and closing REO property, they will know how much of a concession package that you will usually be able to negotiate.