Real Estate

Delinquent Loans vs. REO Bank Property: How Are They Different?

For real estate investing to work for you, you must always keep in mind the economic conditions that dictate what type of real estate investment is the best option at any given time. Do you know its basics? What are bank owned REO properties or delinquent loans? What is the difference between the two? It really is quite simple.

Both delinquent loans and bank-owned REO properties are the unfortunate children of the economic downturn. As the economic crisis takes a turn, so does the loss of homes as struggling homeowners cannot keep up with loans and mortgages.

An adaptation of the well-known nursery rhyme “First comes a non-performing loan, then a foreclosure” serves to illustrate the progression of distressed property management and the main difference between the two concepts. While they undoubtedly traveled the same path, the difference in distance along the path is each.

Let’s say a homeowner can no longer repay a loan. The first month the bank lets it pass. The second month, they mail the letter. On the third, the deck falls: the property has been declared a loan in default. For all intents and purposes, a non-performing home loan is a home loan that has defaulted or is in danger of default when the homeowner can no longer make payments. With some exceptions, three months is all a homeowner has to pay off the estate before their loan is delinquent. And with the current economic conditions, bad loans are sprouting like mushrooms after the rain. Financial corporations that specialize in delinquent loans will help purchase the loan that best suits individual financial portfolios. By liquidating the assets involved, they can realistically provide good value. But not a 50% discounted price. Not with complementary property repairs. Not in bulk. And certainly not without tons of paperwork and fees. None of the things that REO-owned banks can and will do to drive the sale.

Bank-owned REO property, on the other hand, is the next step in the distressed property timeline. No payment on a home loan will sooner or later result in “stepping out,” in other words, the dreaded foreclosure. Foreclosure unceremoniously throws distressed property to the auction table. Properties that cannot be auctioned end up as REO properties owned by the bank. With today’s economy, banks have a veritable real estate tsunami on the way. Fighting savagely to get at least some money back and clearing the books, banks sell bank-owned REO properties like tomatoes at the local market, at a discount, bonds, and other in-house expenses eliminated.

While both are viable options for a real estate investor, everyone wants to buy where an offer is best. And in real estate, affordable, bulk, abundant, and flexible REO bank ownership is far better than a sometimes expensive and rigamarole delinquent loan.

And who wouldn’t bet on a deal that gives you the maximum benefit with a minimal investment, fast.

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