The differences between pre-foreclosures, foreclosure auctions, and REO foreclosures (real estate owned) is that each one is a step in the foreclosure process instead of being a type of foreclosure. Each one of these steps follow one another and each one has opportunities for you to save your house, although they diminish as each progression occurs.
Pre-foreclosure is the first step where you get a notice from your lender that they are starting the foreclosure process. If you cannot work out a deal, the next step is where you go into foreclosure and the lender will auction your “real property” to the highest bidder in hopes of getting their money back. If the auction does not work, your lender may decide to hold onto the property and sell it themselves. This is called REO foreclosure.
Now that you know each is a step in the process, let’s dive a bit deeper into each so you can work to avoid losing everything, or if you’re a real estate investor, determine if a foreclosure home is the right one for you to buy and when to engage.
Note: If you’re a home owner, don’t think of an investor as the enemy. They may decide to offer you a rent-to-own agreement so you can stay in your home, they earn a profit, and you may be able to buy it back over time. If you have no other option but foreclosure, a real estate investor may buy your home from you and you’ll at least have some cash in your pocket instead of losing everything.
Let’s start by looking at what each of these steps in the foreclosure process mean, and at the end of this post you’ll find a helpful table sharing ways to avoid pre-foreclosure, foreclosure auctions and having your home become an REO property.