Pre-Foreclosure vs Foreclosure: What Is the Difference?
By Rent to Own Guide · Published · How we research
Short answer
Pre-foreclosure and foreclosure sound alike, so people mix them up. They are different stages, with different owners, different risks, and different ways to buy. When people say “foreclosure” by itself, they usually mean the later stages: the auction and the bank-owned phase. A short sale is a separate route that can happen during pre-foreclosure.
Side-by-side chart
| Pre-foreclosure | Foreclosure auction | Bank-owned (REO) | |
|---|---|---|---|
| Who owns the home | The homeowner | The homeowner, until the sale | The lender |
| Where you buy | From the owner, or through a short sale | At the auction, in person or online | From the bank, usually through an agent |
| Competition | Often lower, since fewer people know | Often high, with investors bidding | Moderate to high, since it is listed publicly |
| Inspection | Limited, depends on the owner | Usually none | Usually allowed |
| Financing | A mortgage can work, but timing is tight | Usually cash or certified funds | A mortgage is common |
| Price | Negotiated with the owner | Set by bidding; the lender often sets an opening bid, which can be close to what is owed | Set by the bank, usually from an appraisal or an agent's estimate of value |
| Biggest risk | The owner catches up, or other liens appear | Unknown condition, liens, or someone still living there | Sold as-is, so repairs can be large |
| Time pressure | Moderate, with a sale date ahead | High, with a fixed date | Lower, like a normal listing |
How a home moves from one stage to the next
- A homeowner misses payments. Nothing is public yet.
- The lender takes the first formal step. A lawsuit, a recorded notice of default, or a notice of sale, depending on the state. Pre-foreclosure begins. Our guide to how it starts explains the differences.
- The owner has time to act. They can catch up, change the loan, sell, or work out a short sale. If they do, the process ends here.
- The sale date arrives. The home goes to auction, and the highest bidder buys it.
- If no outside bidder wins, the lender takes the home. It becomes bank-owned, and the lender lists it for sale.
Many homes never reach the end of this list, because owners fix the loan or sell along the way. Check the current status before you spend time or money on any home.
Pre-foreclosure homes
In pre-foreclosure, the owner still owns the home, so a buyer deals with the owner and sometimes the lender too. You may be able to negotiate, check the title, and take a little more time than at auction. The tradeoff is uncertainty: the owner can catch up, the lender can refuse a short sale, and liens can show up late. Read what is pre-foreclosure and how to buy a pre-foreclosure home.
Short sales
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In a short sale, the owner sells the home for less than the loan balance, and the lender has to approve it (CFPB). It often happens during pre-foreclosure, so short sale homes are worth watching too. Foreclosure.com has a short sale listings page.
Foreclosed homes and bank-owned homes
When people search for foreclosed homes, they usually mean homes the lender has taken back. These are also called bank-owned homes or REOs, short for real estate owned. They are listed for sale like other homes, most are sold as-is, and the bank is not likely to make repairs. The bank wants to sell, though, so these homes may be open to a reasonable offer.
To browse, here are Foreclosure.com's pages for each stage:
- Foreclosure listings (several stages, including auctions and bank-owned homes)
- Bank-owned (REO) homes
- Pre-foreclosure homes
Which one fits you?
- If you are a first-time buyer, bank-owned homes are usually the easiest place to start. They sell through regular channels, you can usually inspect them, and financing is more flexible.
- If you are patient and comfortable negotiating, pre-foreclosure can give you more room to work. You will need strong title and legal help.
- If you are an experienced cash buyer, auctions can offer deals, but they carry the most risk, because you often can't see inside first.
- If you are not ready to buy yet, a rent-to-own agreement is another route while you build credit and savings, though you will still need to qualify for a mortgage when the option comes due.
Wherever you start, it helps to see new listings as they appear.
A note for homeowners
If you own a home in foreclosure, you are not out of options, and the earlier you act, the more choices you have. HUD points homeowners to free HUD-approved housing counselors at (800) 569-4287 and the Homeowners HOPE Hotline at (888) 995-HOPE (HUD). Avoid anyone who asks for an up-front fee to save your home (12 CFR § 1015.5).