What Is An REO Foreclosure?

An REO foreclosure, also known as a real estate owned foreclosure, is when a house is foreclosed on by the lender, and the lender takes ownership of the title. Sounds a lot like a regular foreclosure doesn’t it?

The biggest difference with an REO foreclosure is that the lender, normally a bank, will keep the property vs. selling the property at an auction to the highest bidder.  The lender will instead try to recover the amount owed on the mortgage which is what makes an REO foreclosure different than a traditional foreclosure.

The process of an REO foreclosure is very similar as well.

1. The lender tries to sell the home at an auction to recoup their money.
2. If the lender does not get a high enough bid at the auction, the lender will keeps the home and tries to sell it themselves.
3. The home is now labeled an REO foreclosure, also known as bank owned real estate.

Now that you know what an REO foreclosure is, let’s take a look at what can lead to it and what causes REO foreclosures.

Causes of REO Foreclosures

The causes of REO Foreclosure can include:

• Inheriting a house and not making mortgage payments if money is still owed.
• A person relocating for work, military service or any number of reasons. In most cases this happens because the person does not want to have two mortgage payments and did not have the time to sell their home.
• Damage from natural disasters. Even if your home is unlivable after a natural disaster, you still have to pay the mortgage even if you’re also paying rent or buying a new house altogether.
• Having adjustable rate mortgages can also cause an REO foreclosure if the rate increases so much that the homeowner cannot afford the payments.

Now that you know what an REO foreclosure is and the causes of REO foreclosures, lets look at some FAQs.

How Can I Avoid an REO Foreclosure?

You can avoid an REO foreclosure by:

• Selling your house before it goes up for auction.  Real estate investors, we buy houses companies, wholesalers, and land developers can sometimes close before the foreclosure auction starts giving you cash in your pocket without losing everything.
• A short sale, when you sell your home for less than what you owe on it, is a solution where the bank absorbs the loss. However the bank needs to approve the short sale so you will need to hire a licensed short sale attorney to help.
• A Deed in Lieu of Foreclosure is a last option to avoid an REO foreclosure.  This is the process where you voluntarily sign the deed over to the bank if they agree to it, and they release you from your mortgage. This can save the lender the cost of going through the foreclosure process and help to save your credit.

Can You Buy Back a House That Is in REO Foreclosure?

Yes, you may be able buy back your house that’s in REO foreclosure if you are able to come up with the money to pay for it. If you repay all your debts and get a new mortgage, you can approach the bank and ask if they would sell your house back to you.  You can raise the money by selling objects you own like a second car, borrowing money from friends or family, and in some cases by taking a loan.

Some states are “redemption states”. These states give you the right to get ownership of your home back by repaying (called redeeming) the debt. In these states the lender must sell you the home back. Check with an attorney to find out if your state is a redemption state.

Pro tip: There are also non-recourse states.  Non-recourse states (as of today 02/23/2022) include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon. These states only allow non-recourse loans which means the lender can take the home but not sue for additional damages. In other states, you may have either type redemption or non-recourse loans.

Who Buys REO Foreclosures?

The people and companies that buy REO foreclosures include:

• Real estate investors
• Wholesalers
• Contractors and land developers
• Home buyers looking for a “fixer upper” or good deal
• Neighbors that want to expand their property

And now you know what an REO foreclosure is in real estate, how you can avoid it, and who will buy an REO foreclosure.  If you’re facing this situation, you’re  not alone.  Thousands of homeowners just like you are in the same boat, at no fault of your own.  Call us at [acf field=”global_phone_number” post_id=”options”] and talk to one of our home buying specialists to see if we can make a cash offer on your house and help you avoid being foreclosed on.