The global financial crisis experienced today has caused many homeowners to lose their homes. The major reason for this is homeowners who are delinquent in their mortgage payments. Those who found themselves suddenly losing a job and undergoing financial hardships are the ones greatly affected by this real estate crisis. This could lead their home to undergo foreclosure and a Real Owned Sale. A Foreclosure and an REO may not be a bit clear to some people, below is the differences between an REO and a foreclosure.

1. A foreclosed home is not yet owned by the bank. Homeowners facing foreclosure attempt to sell their homes through a short sale. It is selling less than the amount owed and asking for unpaid debt forgiveness from the bank or the mortgage lender. In an REO, the bank is already the owner of a property in Real Estate Owned Sale. The bank or the lender is motivated to sell it fast.

2. Homes sold in foreclosures are those whose owners have delinquency in paying their mortgage. The holders of the liens have requested the aid of a court to possess the property and to terminate the borrower’s right to redeem it. An REO is a home repossessed by the bank or the lender after an unsuccessful auction. These homes may be free from all liens upon successful negotiations between the bank and other lien holders.
3. Foreclosed homes sell through an auction. A court officer or county sheriff may initiate the process of bidding. The price initially starts to the amount equal to the amount owed by the borrower but does not exceed the value of the property in the market. Real Estate Owned properties are sold directly by the bank. They cost more than foreclosed properties. The lender is willing to take all possible means to regain their losses on a property.

4. The process of eviction in foreclosure is initiated by the court sheriff, while in an REO, the bank initiates the eviction and involves an eviction coordinator.
5. Foreclosure homebuyers may have many competitions since buying is done through the process of bidding. The highest bidder is granted the deed of the property. Homebuyers in an REO can freely negotiate the price. They are assured that the property is free from liens and they can move-in immediately after purchase since the home will be vacant.

The cost of both sales is lower than most normal buying process, but an REO provides a smoother process in buying compared to that of the much-complicated process in buying foreclosures.

If you are a homebuyer, it is important to bear in mind that the difference of an REO and foreclosure is the responsibility you have to take as a homeowner. Real Estate Owned home are clear and free. When a home goes back to the lender or the bank after it is unsold in an auction, the bank or the lender assumes all responsibilities on the property including the debts, tax liens and other fees related to it. The best possible way is for the bank to sell it at auction since in an auction the buyer assumes all responsibility involved in the property and takes it as is.


Buying a foreclosed property could be a bit risky, it is better to leave it to professional real estate investors who are thoroughly experienced in this kind of buying.