This will be a short blog because I’ve found people like short, sweet info.
A lot of real estate agents are understandably confused about the difference between the two most common distressed sales: a short sale and an REO. The basic difference is who owns the property, whose name is on the deed. In a short sale, the buyer contracts with the seller and the home still belongs to the seller until the transaction closes. The role of the seller’s lender is to accept or not accept the contract price and to work out the deficiency with the seller. Throughout the process the seller still owns the property and a good way to think of it is, at any given moment the seller could win the lottery, pay off the whole loan, remove the short sale approval contingency, and sell the house completely clear of debt.
An REO, or real estate owned, property is one that has been foreclosed on and is now owned by a financial institution. The original owner is gone. The offer to purchase goes directly to the financial institution and the buyer contracts with that institution.
In summary: Short sale: buyer contracts with seller and lender has to approve; REO: buyer contracts with the owning financial institution. The difference between the two is ownership.
Hope that was short and simple enough!