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PNL Glossary

Short Sales

“Short Sales” of property occurs when the proceeds of a real estate sale fall short of the balance owed on the property. This includes the owner’s mortgage loan balance and any additional costs needed to close on a property. In a short sale, the bank or mortgage lender agrees to discount the owner’s loan balance due to an economic or financial hardship on the part of the Owner/ Mortgagor. This negotiation is all done through communication by potential Buyers and the bank's Loss mitigation department. In these transactions, the home owner/debtor sells the property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. The lender will have the right to approve or disapprove of any proposed short sale. Most Short Sales leave the lender with a deficiency balance on the account, for which the Mortgagor / Borrower is still liable.

A short sale typically is executed to prevent a home foreclosure. Often a bank will allow a short sale if they believe that it will result in a smaller financial loss for the bank than foreclosing on the property. For the home owner, advantages include avoidance of a foreclosure on their credit history and partial control of the monetary deficiency. A short sale is usually faster and less expensive than the cost of a foreclosure.

“REO” properties aka “Bank Owned” properties:

“REO” (Real Estate Owned) property, also known as “Bank Owned” property is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. This commonly occurs because many of the properties for sale at the foreclosure auctions have a market value that is less than the total amount owed to the bank. The minimum bid in many of the foreclosure auctions equals the outstanding loan amount, the accrued interest and any costs associated with the foreclosure sale including attorneys' fees. Therefore, there will be no market for such properties at these auctions.

After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. The bank will try to resell the property to the public, through future auctions or through a Real Estate Broker. “REO” properties often times are in poor shape and may require several repairs and updating maintenance. In most cases, the below market price of the “REO’s” can more than compensate for the condition of the property.

Foreclosures

The contract between the financial lending company and the borrower is called a mortgage or deed of trust. When a contract has been entered, effectively the lending company has agreed to give the borrower a certain sum of money in which to purchase the said property. The Borrower agrees to pay this money back ( when Borrow signs a promissory note ). The contract will also stipulate that a lien will be placed on the property meaning that the financial lending company has a right to seize the property ( repossess it ) if the loan is not repaid in the time frame that is stipulated and according to the conditions set out in the contract.

The process of Foreclosure is used, most commonly by banks, in a contract whereby real estate, homes, land, and any other immovable property has been obtained by a Borrow through a mortgage, and the Borrower (mortgage holder) has defaulted on the payments. These properties are often then sold at a Foreclosure auction by the banks or lien holders.