Definition
ORE (Other Real Estate) and OREO (Other Real Estate Owned) are terms used predominantly in the banking and finance sector to refer to real estate properties that have been foreclosed and are now owned by lending institutions, such as banks or savings and loan associations. These properties are generally not used for the institution’s operational purposes.
Detailed Explanation
- Other Real Estate (ORE): Refers broadly to real estate properties that a bank or financial institution holds but does not use for its daily operations, primarily focusing on foreclosed properties.
- Other Real Estate Owned (OREO): Specifically denotes properties that were taken back or repossessed by the lender through foreclosure processes after the borrowers failed to meet their financial commitments. These properties are listed on the institution’s balance sheet.
Examples
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Residential Properties: A bank might foreclose on a residential property after the owner fails to pay their mortgage, subsequently categorizing it as OREO until it can be sold.
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Commercial Properties: A savings and loan association repossesses a commercial property for the same reason and considers it as Other Real Estate (ORE).
Frequently Asked Questions (FAQs)
What happens to OREO properties?
OVE/OREO properties are typically held by the institution until they can be sold to cover the remaining debt or other associated costs.
Why do banks hold ORE and OREO?
Banks hold these properties primarily because they have repossessed them from borrowers who defaulted on their loans, and they aim to sell these properties to recover their funds.
How do ORE and OREO affect a bank’s financial statements?
ORE/OREO properties are listed as non-earning assets on the bank’s balance sheet and can impact the bank’s financial health due to maintenance costs and potential losses on sale.
Are banks allowed to hold OREO indefinitely?
Regulations typically require banks to sell OREO properties within a certain timeframe to minimize holding non-earning assets.
How are ORE/OREO properties valued?
ORE/OREO properties are usually valued at their fair market value or the balance of the loan that the property secured, whichever is lower.
Related Terms
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Foreclosure: The legal process by which a lender takes possession of the collateral property due to borrower’s failure to comply with the loan agreement.
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Non-performing Loan (NPL): A loan in which the borrower is in default and hasn’t made scheduled payments for a specified period.
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REO (Real Estate Owned): Properties owned by a lender—typically a bank or government agency—after an unsuccessful sale at a foreclosure auction.
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Balance Sheet: A financial statement summarizing a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
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Fair Market Value (FMV): An estimate of the market value of a property, based on what a willing buyer would pay to a willing seller in an open market.
Online References
Suggested Books for Further Studies
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“Principles of Banking” by American Bankers Association - A comprehensive guide on banking principles, including the treatment of OREO properties.
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“The Real Estate Investor’s Handbook” by Steven D. Fisher - Covers real estate investing, including foreclosed and bank-owned properties.
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“Bank Management” by Timothy W. Koch and S. Scott MacDonald - Provides insight into bank operations and financial health, including handling foreclosed properties.
Fundamentals of ORE and OREO: Banking Basics Quiz
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