Real Estate Owned (REO) Property

A real estate owned (REO) property is one that is owned by a mortgage lender – typically a bank. Banks aren’t in the business of owning homes, nor do they want to be, so a property only becomes an REO property after all other options are exhausted.

As soon as a lender determines that a borrower or home owner is in financial distress – missed mortgage payments are the best indicator – the lender will try to discover how much equity a property has by ordering an appraisal from a certified appraisal company. Based on the amount of equity determined by the appraisal, the lender will then attempt to sell the property either through a foreclosure auction or a short sale. But if neither of these selling methods works, the property becomes classified as REO.

After the property is repossessed and classified as REO, the lender will immediately begin trying to sell it. It will remove any liens on the property and either attempt another auction, or ask a realtor to sell it to another potential homeowner on its behalf. Often, REO classified properties have been poorly maintained and may need repairs, but the low sale prices banks offer in order to get the property off their hands make up for the repair costs a home buyer will have to assume.

By: Present Value

Tags: Real Estate Owned Property, REO Property
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