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

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, undercutting and seeking forgiveness of unpaid bank debt, 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 owned by delinquent homeowners. The owner of the home bonds has requested 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 an unsuccessful auction. These properties could be free of ties after successful negotiations with the bank and other lien holders.

3. The sale of homes in foreclosure is done by auction. The court officer or sheriff initiates the bidding process. The price 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 costly 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 competitive bidding contests. The property deed is delivered to the highest bidder. Home buyers 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 can move in freely at any time after the sale, as the home will be vacant at the time of sale.

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

If you want to buy a home, it is vital to remember that the main thing that differentiates a foreclosure from an REO is the responsibility it has for you as a potential homeowner. When buying real estate property, you have the assurance that the property is clear and free. When a home returns to the bank or lender after it was not sold at auction, the lender or bank will have to assume all debts, tax ties, and other fees and payments related to that property. The best possible way for the bank is to sell it in foreclosure, since in foreclosure, the buyer gets the property as is, without the need for renovations, and takes responsibility for all unpaid fees and taxes 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.