Trustee sale vs. REO sale: pick your poison

Deciding to buy a property is a major financial commitment. Before you decide to purchase a home it's a good idea to explore all of your purchase options including a mortgage loan, a trustee sale and a real estate-owned sale.

A trustee sale is a home that has foreclosed and has gone to auction to be sold to the highest bidder. A real estate-owned sale is the purchase of a bank-owned property at the asking price from the bank. Even though the processes may seem similar with both options, there are several differences behind the scenes that buyers should be aware of before they choose how to purchase their next property.

Differences you must be aware of

The property condition. When you purchase a property at a trustee sale, you are physically at an auction not at the home; therefore, you are bidding blind. At a trustee sale you may receive a photo of the property along with information about the construction date, etc. but you will not be able to visit the property until you pay cash for and purchase the property. There is a high risk that the property is not in great condition and may require a substantial investment to bring it up to code.

When you buy a property from a bank through a real estate -owned sale, you can physically visit the property to inspect the condition before making an offer to purchase. This gives buyers an advantage, but it doesn't come without a price.

The title and ownership of the property. When you purchase property through a real estate-owned sale, you are buying the home directly from the bank, which means that they own the house and then so do you as soon as the transaction is completed.

This is not always the case with a trustee sale as the trustee is the official owner until the paperwork is complete and all other outstanding debts against the property are repaid. The cost of a property at a trustee sale can be lower than the initial price of a real estate-owned sale; however, the red tape and "hidden" liabilities that come with a trustee sale can be very expensive. This is why buyers must do their due diligence and research before buying a property as a trustee sale.

First lien on the property. When you purchase a property as a trustee sale at auction, the buyer assumes all of the responsibilities for outstanding debts against the property, such as back taxes that are owed.

When you purchase a property through a real estate-owned sale with a bank, this is not the case. The bank that is selling the property has the title and the first lien on the property; this means that all other debts and liens on the property are cleared away when the property is sold. You may pay a higher price for a real estate-owned property, but at least you won't have any costly surprises later on.

Would you rather purchase a property as a trustee sale or a real estate-owned sale?