Definition
Real Estate Owned (REO) is a term used in the real estate industry to refer to properties acquired by a lender, often a bank or a loan insurer, through the foreclosure process after a borrower defaults on their mortgage payments. Once a property has gone through the foreclosure auction and is not purchased, it becomes REO. The lender then takes possession of the property with the intent to sell it and recoup the unpaid loan balance.
REO properties are managed by the lender’s REO department, which is tasked with maintaining, marketing, and selling the property. The ultimate goal is to minimize the lender’s losses and return the property to productive use.
Examples
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Bank-Owned Homes: If a homeowner stops making mortgage payments, the lender will foreclose on the property. If the property fails to sell at the foreclosure auction, it becomes an REO property and the bank will list it for sale, usually with the help of a realtor.
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Government-Owned Properties: Government institutions like Fannie Mae or Freddie Mac also acquire REO properties through foreclosures. These properties are managed and subsequently listed for sale via property management companies or online auction platforms.
Frequently Asked Questions (FAQs)
What is the primary difference between foreclosure and REO?
- Foreclosure is the legal process by which a lender takes control of a property due to the borrower’s inability to meet mortgage obligations. REO (Real Estate Owned) indicates that the property has already gone through foreclosure and is now owned by the lender.
How do banks sell REO properties?
- Banks typically hire real estate agents or list REO properties on online platforms. They might also offer these properties at discounted rates, especially if they have been on the market for a long time.
Are REO properties cheaper?
- REO properties are often sold at a discount compared to market prices, but the condition of the property may vary, and some may require significant repairs.
How can I find REO properties for sale?
- REO properties can be found through various means, such as the lender’s website, real estate agents specializing in REOs, public records, and online auction sites.
What are the risks of buying an REO property?
- Risks includes the property’s condition, potential liens or unpaid taxes, and the time required for repairs and renovations.
Related Terms
- Foreclosure: The legal process by which a lender seeks to recover the balance of a loan from a borrower who has ceased to make payments, typically leading to the sale of the property.
- Short Sale: A sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property, often used as an alternative to foreclosure.
- Pre-Foreclosure: A stage in which the property is in the process of foreclosure due to a borrower’s default, but has not yet been sold at auction.
- Deed in Lieu of Foreclosure: A deed instrument in which a borrower conveys all interest in a property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.
Online References
- HUD REO Property Listings
- Freddie Mac - HomeSteps
- Fannie Mae REO Property Search
- Investopedia - Real Estate Owned (REO)
Suggested Books for Further Studies
- “Foreclosure Investing For Dummies” by Ralph R. Roberts and Joseph Kraynak
- “The Pre-Foreclosure Property Investor’s Kit” by Thomas J. Lucier
- “Real Estate Investing: Market Analysis, Valuation Techniques, and Risk-Rewards” by David M. Geltner
- “Investing in REO Properties: A Guide for Buyers, Investors, and Foreclosure Auction Pros” by Frank Hill
- “The Book on Investing in Real Estate with No (and Low) Money Down” by Brandon Turner
Fundamentals of Real Estate Owned (REO): Real Estate Basics Quiz
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