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What is the difference between a Short Sale and a Foreclosure?

Have you ever wondered what the difference was between a short sale and a foreclosure? Well, you are not alone!

We receive this question so often at the Pruett Group that we wanted to create a special blog entry to help you separate fact from fiction!

short sale is the sale of a home in which the seller’s mortgage lender agrees to accept a payoff of less than the current balance due on the loan.  (A seller is therefore “shorting” the lender of the remaining funds.) In a short sale, the owner still technically owns the property but both the seller AND the bank need to approve the sale. Therefore, in order to buy or sell a home listed as a short sale, the seller needs to accept the offer first and then submit it to their mortgage lender(s) for final approval.  A seller will often attempt to short sale their home to avoid foreclosure.

Why would a lender agree to a short sale and allow the home owner to pay back less than what is owed on their mortgage? To save time and money. Foreclosures are extremely costly and  time-consuming for lenders. They must incur a mutitude of carrying costs while managing real estate rather than mortgage payments. Once the lender realizes that a foreclosure is  inevitable, a short sale may seem like the lesser of two evils.

A foreclosure (REO) is a term that refers to a bank owned property. REO stands for “Real Estate Owned” which is the industry term for foreclosure. These two terms are used interchangeably. A foreclosure is a property that the bank has taken back through the foreclosure process and failed to sell at a trustee sale. When a home is listed as a foreclosure, the bank is the owner and makes all of the decisions regarding the sale. They typically sell the property “as-is” and with  minimal disclosures. REO properties are vacant and sales happen quickly, typically in 30 days or less.

Feel free to share this valuable information with your friends and family. If you know of anyone facing foreclosure or who would like more information on short sales, please contact Marci Pruett for a confidential consultation at: or (858) 531-1119.

We are always here and happy to help.


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