UPDATE 2-Michael Jackson says ranch foreclosure averted

(Adds Colony "comfortable" holding loan, details, background)

NEW YORK, May 11 (Reuters) - Entertainer Michael Jackson said on Sunday a foreclosure sale on his Neverland Ranch set for this week was averted after a loan on the California property was sold to Colony Capital, a large real estate investment firm.

The loan, which sources familiar with the matter said was about $23.5 million, had been held by Fortress Investment Group (FIG.N: Quote, Profile, Research), a New York-based private equity and hedge fund group. The 2,700-acre ranch in Santa Barbara County was slated to be auctioned off on May 14 after Jackson defaulted on loan payments.

In a press release, Jackson said he was in discussions with Colony and its founder, Tom Barrack Jr, "with regard to the ranch and other matters."

Colony, a Los Angeles-based firm that has invested more than $39 billion since its founding in 1991, is "very comfortable" holding the loan while it negotiates payment terms, a person familiar with the situation said.

Representatives of Jackson and Colony declined to comment. A Fortress representative could not be reached for comment.

The formerly high-flying singer and songwriter saw his career slammed a child molestation trial in 2005. Even though he was acquitted on all counts, he has faced significant financial problems in recent years. (Reporting by Dane Hamilton; editing by John Wallace)