Due to the continuing economic depression, more and more people are losing their homes. The main reason for this is late mortgage payments. Homeowners who are suddenly out of a job or going through some financial difficulties are the ones who are experiencing this crisis. This leads to their properties being subject to foreclosure and later, a Real Estate Own Sale. You might ask, what is the difference between a foreclosure and a real estate property sale (REO)?

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 try to sell their homes through a short sale, selling less than what is owed 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 delinquent owners. The home lien holder has required court assistance 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 a failed auction. These properties may be free of liens after successful negotiations with the bank and other lien holders.

3. The sale of the foreclosed home is carried out by auction. The court officer or bailiff initiates the bidding process. Pricing initially starts at an amount equal to the borrower’s outstanding loan, but does not exceed the property’s market value. Real estate is sold directly by the bank. They are expensive compared to a 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 does the eviction while in a real estate sale, the bank initiates the eviction involving an eviction coordinator.

5. The buyers of a foreclosed property can have several contests in the auction. The deed to the property 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 clear of all lines. Additionally, buyers are free to move in at any time after the sale is complete, as the home will be vacant at the time of the sale.

The cost of ownership for both sales is quite low than in a normal buying 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 owner. When buying real estate properties, you are assured that the property is clean and free. When a home returns 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 associated with the property. The best possible way for the bank is to sell it in a foreclosure, since in a foreclosure, the buyer gets the property as-is, with no renovations required, and assumes responsibility for all unpaid taxes and debts on the property.

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

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