By Melissa Dittmann Tracey, contributing editor, REALTOR® Magazine
Do you ever tell others that you are “showing a foreclosure?” If so, you’re not using the word “foreclosure” correctly.
Some real estate professionals use the term to refer to all distressed properties, Kathy Mehringer, director of risk management with Coldwell Banker Residential Brokerage, Southern California companies, told attendees at a session last week during the California Association of REALTORS® Expo.
Here are the definitions Mehringer provided to set the record straight:
Foreclosure is a legal process by which a defaulting borrower is deprived of their interest in the property.
Real estate owned (or REO), on the other hand, is a real estate asset owned by the lender that is taken back during the foreclosure process.
You show REOs to clients, not foreclosures. Foreclosures are legal proceedings.
Another common set of terms often confused when discussing short sales and foreclosures: portfolio loan versus servicing agent.
Portfolio loan is an asset owned and controlled by the lender. The decision maker on the loan is in-house.
A servicing agent is hired by the lender to service the loan or is an investor, such as a private investor or government-sponsored enterprise, like Fannie Mae or Freddie Mac. They are often subject to guidelines. (You can’t always find out who the investor of the loan is.)
The short sales process is often easier to facilitate when dealing with a portfolio loan, Mehringer said, since a servicing agent has limited authority and may need to go back to the portfolio loan holder for final approval.
So here’s a good question to ask when you take a short-sale listing: Is this a portfolio loan or through a servicing agent?