REO and P&P Foreclosure Properties: 2 Different Types of Foreclosures In The Property Preservation Industry

Regardless of how it may appear on the surface, there is an extremely important issue that property preservation company owners need to know about, regarding the terms "REO" and "Property Preservation". These are two completely different categories of foreclosure properties within the property preservation industry. Most national property preservation companies only specialize in either one or the other or they will separate the jobs by using two totally different departments within the same company; i.e. 1 for REO property work orders and the other for the Property Preservation work orders. If you are thinking about starting a property preservation business, you better do your homework and learn about each of these 2 categories of foreclosure properties. Otherwise, you will be quickly introduced to the most aggravating thing in the world,... the Charge-back.

The reason there are 2 different classifications of foreclosure properties is really quite simple. What is NOT simple is how you as a property preservation business owner is affected by each of these 2 types of foreclosures. The difference is based on whether or not the property owner's mortgage loan was an "FHA guaranteed" loan or not. Government programs means government regulations and a whole lot of them. All of which need to be known and understood by anyone involved in property preservation.

REO is the term used when the loan was NOT an "FHA guaranteed  loan". In this instance, the lender is in charge of the entire foreclosure process as well as disposing (or selling) of the asset. Because this loan was not guaranteed by the Dept of HUD the lender DOES NOT have to follow any additional rules. The #1 goal for REO foreclosure property is to get it sold as fast as possible.

P&P  is the term used when the loan that is delinquent was an "FHA guaranteed loan". This means that the individual who borrowed the money against the property, did so using a special type of bank loan designed for individuals with either very little down payment money or with "less than good credit". The bank utilized the FHA program created and mandated by the Dept of HUD (you know, our government). For simplicity purposes, HUD provides a type of insurance to lenders that protects them from certain "financial losses". The #1 goal for the Property Preservation foreclosure property is to comply with HUD regulations.

In this case, the Dept of HUD is ultimately in charge of the property at the end of the foreclosure. However, the lender is still in charge of taking the property through the foreclosure process and they must follow very specific requirements in order to comply with HUD and receive reimbursement for their loss. REO foreclosure properties are similar to Property Preservation foreclosure properties in some ways. But the main difference is that P&P is directly dealing with a division of the federal government which causes them to have additional "hoops" to jump through.

Here is a simplified example to better describe HUD's involvement in a typical FHA loan: Say Mr X buys a house and gets a $100,000 FHA loan from Bank A. Two years later, Mr X loses his job and falls behind on his payments. Let's also say that the current market value dropped from around $100,000 down to $60,000. Well as long as Bank A follows the rules and regulations throughout the entire foreclosure process that are set forth by the Dept of HUD, they (Bank A) will be "reimbursed" the entire amount of the loan including interest.   

So how does this affect you as a contractor? Find out by heading over to the HUD Property Preservation Page at our main website.