Most have heard the terms: short sales, foreclosures, and REO, which are no doubt the buzz words of the real estate industry these days. They are the processes you hope you don’t have to go through as a homeowner. However, these are also the factors that are, in part, making this a buyer’s market.What exactly are the differences between each situation? Each process is complicated and complex, and as always, your best bet is to get yourself situated with a trusted and experienced REALTOR®. It also helps if you understand, at least to a certain extent, the processes yourself.

Natascha Tello clears up the confusion and clearly defines short sales, foreclosures and REO.

“Short sales, in most circumstances, are the first step to avoid foreclosure. Although the lender(s) will recover less than the total loan amount in a short sale, they may prefer this in lieu of foreclosure. The costs of foreclosing on a property may be more than the bank’s loss by taking a short sale.

Also, the property may not sell at auction and then the bank would be forced to take it back as an REO (Real Estate Owned) property, which then they would have to maintain, list and sell themselves.”

Short sales, foreclosures and REO are all feasible options if a homeowner is unable to make their monthly mortgage payments. But before you jump in and decide which is the best option for you, be sure to talk to your Realtor. The same applies for potential homebuyers looking for a great deal.

Consumers Paying Credit Cards First

In this troubled economy, an increasing number of consumers are opting to pay their credit cards before they make a mortgage payment, according to a report from TransUnion. This is a flip-flop of traditional priorities.

TransUnion concluded in a statement that this trend could portend higher mortgage delinquency rates, but was understandable in an economy where many people are out of work.

“You cannot buy groceries with your house,” says Sean Reardon, author of the study and a consultant in TransUnion’s analytics services unit.

The study was conducted between the second quarter of 2008 and the third quarter of 2009. The delinquency rate for consumers who were delinquent on their mortgages, but current on credit cards during fourth quarter of 2007 was 19.1 percent. That delinquency rate rose to 29 percent in the third quarter of 2009.

Source: Reuters News, Julie Haviv (02/03/2010)