First, there are short sales or pre-foreclosures, deals where an owner who can no longer afford the property tries to work out a purchase with a buyer, subject to the approval of the lender. If that doesnât work, the lender may start foreclosure proceedings, and the home may be put up for sale at a public auction. If the highest bid at the auction is insufficient, the lender then gets title to the property and holds it as a bank-owned (or REO) property.