Bank Owned, REO, Foreclosure, Pre-Foreclosure, Short Sale, Sheriff’s Sale – Explained

Buyers are seeing many more homes for sale today with terms like REO, foreclosure, short sale, and others.  All these terms have something to do with a bank, but here’s an explanation for each:

• Bank Owned
  • The bank has aquired title (ownership) to the property.  The bank is the seller.
• REO or “Real Estate Owned”
  • Can be read simply as “bank owned”
• Corporate Owned
  • Many times this is just another way to say “bank owned”
•  Foreclosure
  • This is the process by which a lien holder aquires the property through court procedures.  Each state operates a little differently, but this process can typically take several months once started and typically does not start until the owner is 60-90 days behind.
• Pre-Foreclosure
  • This is commonly referred to as the time during the foreclosure process but before the sheriff’s sale.  In this time period you are still negotiating with the seller but the bank may have to be consulted in cases where a short sale is needed.
• Short Sale
  • When a seller is in a distressed situation and the offer that is submitted does not cover the expenses to sell the home and pay off the lender, the seller may ask the bank to take a “short payoff” on the loan, meaning to accept less than what was owed.  Banks will sometimes do this because they do not want to own homes, they want to make loans.  Each circumstance is different and the bank is not required to accept any short payoff.
• Sherriff’s Sale
  • In Minnesota, the foreclosure process finishes with a “sherrif’s sale” of the home.  The county sherriff holds an auction where all interested parties make a bid for the home.  Most often a representative of the bank is the only bidder for the home.
• Redemption Period
  • In Minnesota, this is a 6 month window from the date of the sheriff’s sale that the property owner can still occupy the home and if they can get the cash or funding, they can pay off the entity that bought it at the auction (most often the bank) and keep the home.