Due to the continuing economic depression, more and more people are losing their homes. The main reason for this is delinquent mortgage payments. Homeowners who are suddenly out of a job or experiencing some financial hardship are the ones experiencing this crisis. This leads to their properties being subject to foreclosure and subsequently, a Real Estate Own Sale. You might be wondering, what is the difference between a foreclosure and an REO sale?

Here are the differences between a foreclosure and an REO:

1. A foreclosure is a home that is not already owned by the bank. Most homeowners attempt to sell their homes through a short sale, underselling and seeking forgiveness of unpaid debt from the bank, whereas 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 owned by defaulting owners. The lienholder on the home has requested the assistance of the court to recover possession of the home in order to terminate the borrower’s right to redeem. An REO is a house or property repossessed by the bank or lender after a failed auction. These properties could be free of liens after successful negotiations with the bank and other lien holders.

3. The sale of the awarded home is carried out by means of an auction bid. The court clerk or bailiff initiates the bidding process. Pricing initially starts at an amount equal to the borrower’s outstanding loan, but does not exceed the market value of the property. Real estate is sold directly by the bank. They are expensive compared to foreclosure, as lenders are willing to take every opportunity to recoup their losses.

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

5. Buyers of a foreclosed property may have multiple contests at auction. The property deed is delivered to the bidder with the highest bid price. Homebuyers in an REO can negotiate the price with the bank or mortgage lender. They are also assured that the home is free of all lines. Also, buyers are free to move in at any time after the sale is made, as the home will be vacant at the time of sale.

The cost of ownership for both sales is quite lower than in a normal purchase process. An REO may have a smoother buying process compared to a foreclosure.

If you want to buy a home, it’s vital to remember that the main thing that differentiates a foreclosure from an REO is the responsibility it has to you as a potential homeowner. When buying real estate properties, you are assured that the property is clean and free. When a house goes back to the bank or lender after it failed to sell at auction, the lender or bank will have to assume all debts, tax liens, and other fees and payments related to that property. The best possible way for the bank is to sell it at foreclosure, because in foreclosure, the buyer gets the property as-is, with no renovations needed, and takes responsibility for all unpaid taxes and debts on the property.

A foreclosed property can have various risks involved. It’s best left in the hands of professional real estate investors who know a lot about foreclosed homes and the process involved.