What is the Difference Between a Foreclosure Sale and an REO?

Due to the continuing economic depression, more and more people are losing their homes. The major reason for this is mortgage payments delinquency. Homeowners who have suddenly found themselves out of work or undergoing some financial difficulties are the ones who are experiencing this crisis. This leads to their properties being subjected to a foreclosure and later on, to a Real Estate Owned Sale. You might ask, what is the difference between a foreclosure and Real Estate Owned (REO) sale?

Here are the differences between a Foreclosure and an REO:

1. A foreclosure is a home that is not yet owned by the bank. Most homeowners attempt to sell their homes through a short sale, selling less than owed and seeking forgiveness of unpaid debt from the bank, while in an REO, the bank already owns the property and is motivated to sell it as soon as possible.

2. Homes sold through foreclosure are those that are owned by delinquent homeowners. The holder of the liens of the home has required the assistance of the court to repossess the home in order to terminate the borrower’s right to redeem. An REO is a home or property repossessed by the bank or a lender after an unsuccessful auction. These properties could be free from liens upon successful negotiations with the bank and other lien holders.

3. Foreclosed home sale is done through bidding in auction. The officer of the court or the sheriff initiates the process of bidding. The price initially starts to an amount equal to the borrower’s outstanding loan but does not exceed the property’s market value. Real estate owned properties are directly sold by the bank. They are expensive compared to a foreclosure since lenders are willing to take all opportunity for them to regain their losses.

4. When it comes to the eviction process, in a foreclosure, the sheriff performs the eviction while in a real estate owned property sale, the bank initiates the eviction which involves an eviction coordinator.

5. Buyers of a foreclosed property may have several competitions in bidding. The property’s deed is given to the bidder with the highest bid price. Homebuyers in an REO may negotiate the price with the bank or the mortgage lender. They are also assured that the home is free of all lines. Plus, buyers can freely move-in anytime after sale is made since the home will be vacant by the time of the sale.

The cost of the property for both sales are fairly low than in a normal buying process. An REO may have a smoother buying process compared to that of a foreclosure.

If you are wishing to buy a home, it is vital to remember that the main thing that differentiates an foreclosure from an REO, is the responsibility for you as a potential homeowner. Buying real estate owned properties you are assured that the property is clear and free. When a home goes back to the bank or the lender after it remained unsold in an auction, the lender or the bank will have to shoulder all the debts, tax liens and other fees and payments connected with the said property. The best possible way for the bank is to sell it at foreclosure since in a foreclosure, the buyer gets the property as it is, without renovations needed and takes on the responsibility of all unpaid dues and taxes on the property.

A foreclosure property may have several risks involved. It is better to leave it to professional real estaet investors who know a great deal about foreclosure homes and the process involved.