Foreclosed homes and bank owned homes (or REO) are terms used often in the Property market and an understanding on the difference between bank owned and foreclosure is important for those dealing with buying and selling properties. Foreclosure and bank owned homes are homes that have been repossessed by a bank or are in the process of being repossessed and auctioned off to third parties. The terms bank owned and foreclosure are often confused by many to mean the same. There are, however, a number of differences between bank owned and foreclosure, especially when it comes to how they are sold off. The following article takes a closer look at these terms and highlights the similarities and differences between bank owned and foreclosure.
What does Foreclosure mean?
A foreclosure of a home occurs when the home owner is unable to make mortgage payments to the lender, typically a bank. A home undergoing foreclosure is not owned by the bank until the foreclosure process is completed. In the event that a borrower who falls behind on mortgage payments is unable to reach an arrangement with the bank or lender to resolve their payment obligations, the bank starts the foreclosure process. At the end of the foreclosure process, the home or property is put on public auction. The proceeds that are obtained from the auction is used by the bank to recover their losses. The foreclosure of a home can seriously affect a borrower’s credit record and make it difficult to purchase real estate or obtain loans in the future. Therefore, borrowers must take into consideration other options that may be available to them apart from going for a foreclosure.
What does Bank Owned mean?
A bank owned property or REO (Real Estate Owned) is a property in which the ownership has reverted back to the bank or lender. In most instances homes or properties that are put on public auction after a foreclosure are not sold. These properties are then bought back by the lender. Then they become a REO that is then put on sale. In certain instances where the borrower is unable to meet their mortgage obligations, the borrower may offer the property deed in lieu of foreclosure. The property then become bank owned. Such homes and properties are then maintained by the bank and a mortgage loan on the home or property no longer exists. Bank owned homes are sold at competitive prices with the aim of the lender recovering most of their initial investment.
What is the difference between Foreclosure and Bank Owned?
Bank owned and foreclosure homes are often confused by many to be the same. There are, however, a number of differences between bank owned and foreclosure. The main difference lies in the manner in which each type of property is sold. While foreclosed properties are sold through public auction, bank owned homes are repossessed by the bank and sold off at competitive prices through realtors. Unless the borrower hands the lender the property deed in lieu of foreclosure, most homes and properties become bank owned only after going through a foreclosure procedure and an unsuccessful auction. Homes that are not sold via auction then are repossessed by bank and sold at competitive prices. The similarity between the two is that foreclosures and bank owned properties are both sold with the aim of recovering an investment made by the lender in a property on which a borrower defaults on mortgage payments.
Summary:
Foreclosure vs Bank Owned
• Bank owned and foreclosure homes are homes that have been repossessed by a bank or are in the process of being repossessed and auctioned off to third parties.
• A foreclosure of a home occurs when the home owner is unable to make mortgage payments to the lender, typically a bank.
• In the event that a borrower who falls behind on mortgage payments is unable to reach an arrangement with the bank or lender to resolve their payment obligations, the bank starts the foreclosure process.
• A bank owned property or REO (Real Estate Owned) is a property in which the ownership has reverted back to the bank or lender.
• In most instances homes or properties that are put on public auction after a foreclosure are not sold. These properties are then bought back by the bank and become a REO that is then put on sale.
• The main difference between bank owned and foreclosure lies in the manner in which each type of property is sold. While foreclosed properties are sold through public auction, bank owned homes are repossessed by the bank and sold off at competitive prices through realtors.
• The similarity between bank owned and foreclosure is that foreclosures and bank owned properties are both sold with the aim of recovering an investment made by the lender in a property on which a borrower defaults on mortgage payments.
Further Reading:
- Bankruptcy and Foreclosure