Non-REO Foreclosure

A non-real estate owned foreclosure, or non-REO foreclosure, refers to a successful foreclosure on a real estate property. In a non-REO foreclosure, when the property in foreclosure is put up for auction, a purchaser agrees to pay the amount owed to the bank for the property, or less if the bank is willing to offer a discount. 

The foreclosure process starts after a borrower fails to make mortgage payments for several months, a time period defined within the terms of the mortgage. To avoid foreclosure, the homeowner may put the property on the market via a real estate short sale.

If the homeowner is unable to quickly sell the property, the lender may repossess it and put it up for public auction. These auctions often take place in county courthouses. The price of the property is typically the amount owed by the homeowner plus legal costs, though the lender may accept less in some situations. When a winning bidder purchases a property up for auction, the foreclosure is a non-REO foreclosure because the lender was not forced to take ownership.

Foreclosed properties are attractive to buyers who are looking to buy property at a big discount. Because of the potential to acquire real estate at a great price, public auctions may draw a crowd of interested buyers. Indeed, non-REO properties sometimes make it possible for buyers to purchase a property they would otherwise not be able to afford.

However, purchasing in a non-REO foreclosure is not without risk. Buyers of non-REO properties also owe any outstanding taxes and liens on the property. They are also responsible for any maintenance the property needs, which could be significant. It’s also possible the new owner will have to deal with evicting tenants who reside on the property.

A non-REO foreclosure is different from a real estate owned foreclosure. A non-REO foreclosure becomes a real estate owned foreclosure when an auction occurs but no buyer comes forward with an offer that meets the minimum bid. In these cases, the lender takes ownership. Banks often post their REO properties online. They may also enlist the help of real estate agents to reach more buyers and speed up the selling process. To further entice buyers, lenders may list their REO properties at a discount and eliminate some of the expenses attached to their titles. For this reason, real estate owned properties may be a safer investment than non-REO foreclosures.