What is the Difference Between an REO and Foreclosure

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What is the Difference Between an REO and Foreclosure?

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The big question in many buyers' minds seems to be the difference in all these properties that are listed. Each property has its own story on how it came to the market, but in this article, we will be focusing specifically on the difference between an REO home and a Foreclosure home.

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An REO home, in essence is a foreclosure home. Although this sounds rather confusing, let's look at the process. First, a home goes through default, pre-foreclosure, and then foreclosure. When the home is at the foreclosure stage, it is put up for auction. An auction is held and anyone can attend. If the property is not sold at the auction, the property goes back to the bank. When this happens, the property is called an REO property.

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When the home is at the auction, it is still referred to as a foreclosure home. If someone buys it at the auction, they have bought a foreclosure home. So, you will probably be wondering- well what is the actual difference?

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The main difference between and REO home, also known as a bank owned home, and a foreclosure home is that the REO home is free and clear. When the bank takes the home bank after the auction, they have to clear and pay off all tax liens and mortgages on the home that exist. This would include back taxes, second mortgages and such. This is a good example of why banks are not so thrilled to take the home back. In the more recent cases, people have bought a home for way over the actual market value, as well as taken a second mortgage or "equity line" on a home.

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When a person buys a foreclosure at an auction, they are truly buying the home "as-is". This means they are buying the home, any second mortgages, which get assumed by the buyer, as well as any tax liens. Sometimes people who purchase a chase reo properties think they are getting a huge deal. In some cases this may be true. In most cases, however, they are getting a lot more than they bargained for. They then look at their once amazing purchase and start to minus off profit lines when all is said and done.

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In all, it is safe to say that buying a bank owned home is much safer than buying a foreclosure home. It is best to leave the foreclosure auctions up to the experienced investors. They are the ones that can tell the difference between a good deal and a bad deal; and, at times, they are even sometimes wrong. Do yourself a favor and play it safe!

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