In the Real Estate Market, properties are purchased by resorting to mortgage loans for financing by pledging the concerned properties as securities. In the event of the borrower violating the terms of the mortgage deed by defaulting in repayment of the loan, then the mortgage lender enforces the right on the property by foreclosing the mortgage deed. This is done to retrieve the amount of loan, or the balance of loan that is yet to be paid by the borrower by selling of the property to realize the proceeds. These are called foreclosure properties.

In the course of their financial activity banks are inclined to extend loans to the people under various heads of secured and unsecured categories. Real estate business needs funding for purchase of properties and they mainly depend on mortgage loans extended by the banks to the buyers of real estate properties of any kind – residential or commercial. Banks thus engage in prime lending by way of sanctioning housing loans to their customers and sub-prime lending through refinancing the already issued and secured loans by others. In any manner getting back the loan amount from the barrower with interest is the main objective and in the event of default, banks have to inevitably resort to foreclosure process to dispose of the concerned property to achieve this.

Most of the banks have separate departments to deal with the legal aspects of the foreclosure process. They undertake the task of getting back the loan amount by entrusting the disposal of the property to the more knowledgeable real estate agencies by selling the mortgage notes appropriately, without much loss to the bank. Such foreclosure properties are called “REO” – Real Estate Owned properties. The Banks have the complete list of foreclosure properties for which they have financed and investors in such foreclosure properties can deal with the banks for acquiring such properties, mostly through auctions.

Federal Governments, as a welfare measure, encourage their homeless citizens to acquire their own and extend financial assistance. The U.S. government has a separate Department of Housing and Urban Development (HUD) which is dealing with granting mortgage loans through agencies, mainly for housing properties like single family homes, town homes and condominiums for lower rates of interest. The credit worthiness of the borrower is not subjected to rigorous tests as done by other institutional mortgage lenders and the result is the number of foreclosures in the government owned properties is steadily on the increase in the recent past.

The difference mainly in buying properties from Bank foreclosures and Government foreclosures is that a very wide choice of properties are offered for sale by Bank Foreclosures – both residential and commercial properties of any size, whereas the Government foreclosures are confined only to single family and multiple family residences. But the catching point is one can save a lot in the purchase price of Government foreclosures!

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