- First Stage - Pre-Foreclosure
- Second Stage - Trustee Sale
- Third Stage - Foreclosed Properties
- Fourth Stage - Auction Properties
In many areas, REO sales are dominating the market so understanding the various REO categories is important for buyers.
First Stage - Pre-Foreclosure
The buyer must negotiate with the homeowner to purchase the property. Current market conditions are mandating that most property owners will need to sell the property under short sale terms. Buyers will need to do their homework very carefully if entering negotiations without the services of a real estate professional or an attorney.
Second Stage - Trustee Sale
The property is placed on public auction. The property is sold on the court steps in the county in which the property is located. The buyer can purchase the property for the balanced owed on the property. Buyers must be in a position to buy the property at the time of auction, usually this is an all cash transaction. Buyers are usually responsible for any other liens and encumbrances attached to the property at the time of sale. In states that offer the property owner the "right of redemption", the property will enter judicial proceedings. Buyers need to be familiar with the state laws governing the sale of foreclosed properties.
Third Stage - Foreclosed Properties
The pre-foreclosure process has been completed, the property is now bank owned (investor owned). The bank places the property "for sale" on the market, normally through the services of a local Realtor. Most foreclosed properties being offered for sale will appear in the local MLS for the area. Some banks offer lists of property that they are offering for sale, whether listed with a real estate agency or not, as well.
Fourth Stage - Auction Properties
The mortgage holder will offer the property under Auction terms: buyers bid on the property, highest bidder wins. Many properties offered at Auction have starting bid prices that are excellent buys, but it is the winning bid which determines whether the buyer will pay a below market, at market or over market sales price. Generally speaking, properties are offered for auction after they have been on the market for a period of time but have not sold. Most property at Auction may be financed. In most cases, the buyer must have a letter of commitment from a lender in order to purchase a property at auction. A cash buyer must provide "proof of funds". Note: When a property is offered at auction is determined by the policy of the bank