If you happen to be house searching, you may want to consider buying a foreclosed property, also called a real estate owned (REO) property. An REO house is owned by the lender as a result of the past owner defaulting on the mortgage. This is also known as a foreclosure property or simply a bank-owned property. So how exactly does a foreclosure on a house work? If the home doesnt resell, the lender will hold onto the real estate, which is known as real estate-owned, and also REO. Throughout most of the foreclosure process, until five days before the public auction date, you will be in a reinstatement period. You could make all your past payments in full along with penalties.