GLVAR creates REO Work Group to handle bank-owned properties

: Everywhere I go it seems like I hear about foreclosures, bank-owned homes, REOs and short sales. Can you help me understand the difference between these things, especially the difference between a foreclosure and a short sale? -- Ashley N., Las Vegas

A: That's a great question. With all the news about the housing market these days, these terms get tossed around constantly. Let me try to clear up some of this confusion.

Let's start by explaining why people often use terms like foreclosures, bank-owned homes and real estate-owned homes (or REOs) interchangeably.

That's understandable, since they're generally describing the same thing -- homes owned by banks or other lenders.

A home in foreclosure, also called an REO or a bank-owned home, is obviously owned by a bank or some other lender that took the property back from a homeowner who did not pay the mortgage. So, in such cases, the lender becomes the seller of the home.

This is quite different from a short sale, which occurs when homeowners sell a property for less than what they currently owe on their mortgage, with the lender forgiving a portion of the loan.

In a short sale, the homeowner still owns the property and is still acting as the seller.

One thing that makes a short sale more complicated, and which also helps explain why we've seen many more foreclosures than short sales, is that the bank or mortgage lender must approve the sales price and other aspects of a short sale.

Many people ask me why we're not seeing more short sales since they help distressed homeowners avoid foreclosure and help banks avoid repossessing a property.

In theory, banks benefit from short sales because they lose less money on such transactions than they do in foreclosures that take months to initiate and resolve.

And homeowners take less of a hit on their credit score by selling their home in a short sale than they do after losing their home in a foreclosure.

Thankfully, we're starting to see more short sales.

In early May, the U.S. Treasury Department announced that it would begin offering more incentives to lenders to work out short sales when borrowers fall behind on their mortgage payments. At the same time, some of the nation's largest banks, such as Bank of America, have announced revised policies encouraging more short sales.

It remains to be seen how much impact such moves will have here in Southern Nevada, where we have one of the nation's highest foreclosure rates.

But one thing is clear. Whether you call them bank-owned or REOs, homes owned by lenders are dominating the local housing market, accounting for about 80 percent of all existing homes sold today here in Southern Nevada. They are also driving down local home prices, which are now about what they were in 2001.

This situation has prompted Greater Las Vegas Association of Realtors to create what we're calling our REO Work Group to deal with these tough issues.

Our initial goal is to better educate GLVAR members, who can then share this knowledge with home buyers and sellers. To me, education is a key to solving the problems that come with buying a foreclosed property.

More specifically, I think we need to inform the public about what to expect in an REO transaction, as well as in a short sale.

The top REO agents in town are helping us put together a brochure and other materials about these issues.

I'll keep you posted on our progress in future columns. Until then, please feel free to contact a local Realtor or visit lasvegasrealtor.com or realtor.com.

Sue Naumann is the president of the Greater Las Vegas Association of Realtors and has worked in the real estate industry for nearly 30 years. GLVAR has more than 14,000 members. To ask her a question, e-mail her at ask@glvar.org. For more information, visit lasvegasrealtor.com.