Short sales, pre-foreclosures and bank-owned (REO) homes all involve a homeowner who could not keep up with a mortgage, so people often lump them together. But they are very different for buyers, and for homeowners in trouble the difference between them can matter a great deal.

The three stages

Pre-foreclosure. The homeowner has fallen behind and the lender has started the foreclosure process, but the owner still owns the home. In California this usually begins with a recorded Notice of Default.

Short sale. During pre-foreclosure (or before it), the owner sells the home for less than what is owed, and the lender agrees to accept that lower amount. The owner is still the seller, but the lender must approve the deal.

Foreclosure and REO. If the home is not sold or the loan brought current, it goes to a trustee's sale (auction). If no one buys it there, the lender takes it back and it becomes a bank-owned, or REO, property.

For buyers: how they compare

  Short sale Bank-owned (REO)
Who is the seller The homeowner, with lender approval The bank or asset manager
Timeline Often slow; lender approval can take weeks or months Usually faster once accepted, with strict deadlines
Condition Often occupied; usually sold as-is Usually vacant; sold as-is
Price certainty The lender can counter or decline after the owner accepts Once the bank signs, the price is set
Best for Patient buyers with flexible timing Buyers who want a defined process

Browse current listings on our pre-foreclosure and short sale page or our bank-owned (REO) listings by county.

For homeowners: why a short sale may be the better path

If you are behind on your mortgage, a foreclosure is not your only outcome. A short sale lets you sell the home on your own terms before the auction, and many homeowners find it less damaging than a completed foreclosure. Depending on your situation, a loan modification or a regular sale with equity may also be options.

Every situation is different, and the tax and credit effects of a short sale depend on your circumstances, so talk with a tax professional or attorney about your specific case. The most important thing is not to wait: the earlier you act, the more options you have.

Talk to someone who has seen both sides

I have worked with lenders and asset managers on bank-owned homes for over 20 years, so I know how lenders evaluate short sales and REO offers. Whether you are a buyer looking for value or a homeowner looking for options, call or text Namneet Dhaliwal at (714) 932-9409 for a confidential conversation.

Zone Realty, Inc. | DRE #01393340