Differences between a Foreclosure and an REO home

Foreclosure is the process in which a lender takes possession of a property. When a homeowner fails to make payments on his/her mortgage, the lender can begin foreclosure proceedings. This is a very specific legal process with set timelines and outcomes. In a short sale situation, the homeowner's name is still on title of the property and they are the official owners who are trying to sell the property. In a foreclosure, the lender takes possession of the house and as a result, the homeowner is no longer a party in the sale.

Foreclosure properties are auctioned at a Trustee Sale at the court house in the county where the property is located. Foreclosure properties must be paid for in full at the time of the auction. Because these transactions do not go through the same closing process as regular sales, usually only seasoned investors will purchase property at a Trustee Sale. This is due to the inherent risks and potential problems that are normally investigated and cleared during a title search. Problems may include: title problems, superior loan pay offs, IRS liens, tenants or owners still occupying the property, and/or structural problems. The price may seem good at auction (priced well below other houses in the neighborhood), but costs and risks may come after taking title.

Real Estate Owned (REO) is a term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of foreclosure. REO is property owned by a lender, usually a bank, after an unsuccessful sale at a foreclosure auction (Trustee Sale). The bank will then go through the process of trying to sell the property on its own. It will try to remove some of the liens and other expenses on the home, and then try to sell it through the use of Realtors.

If the buyer of an REO is making any moving plans, they should note that a closing delay could occur. The bank, as the seller, will set the pace of the transaction. This is especially true in the last days prior to closing. Please be sure to work with an experienced agent in helping you buy an REO home.

Most recent Anne Arundel county foreclosures

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