Foreclosures and REOs–Know the Difference

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Uncategorized

Do you know the difference between a foreclosure and a REO? If you’re looking to buy or sell real estate in this market, you should. Knowing the difference can give you a huge advantage in the amount of profit you can expect to make on any real estate deals.

In a foreclosure, the ower of a property has defaulted on the loan payments (this means the payments haven’t been made), and the bank is going through the process of legally taking the property back. Most properties that are being foreclosed on are offered at auction to the public. Naturally, the bank hopes to recoup the cost of the property at the auction, but this rarely happens in bad markets. Many times, banks end up having to take a loss on the property at auction to avoid even deeper losses in the future from trying to maintain the property. Some very god bargains can be had at foreclosure auctions.

REOs are a bit different. In a REO (which stands for “Real Estate Owned”), the bank has retaken possession of the property and has not sold it at auction or otherwise. The bank is the owner of the property. A bank may end up with an REO property when it fails to sell at auction, or if the price they were offered at auction was not acceptable. In these cases, the banks are responsible for maintaining the property and must find a way to sell it or rent it out themselves. This is not an ideal situation for banks, and they are often willing to negotiate some excellent terms on REO sales for investors who go directly to the bank to make a deal.