Bank-Owned Properties and REO (FAQs)

What is an REO?

REO is an acronym for Real Estate Owned and is industry jargon for foreclosure property repossessed by banks or lenders. If a lender or bank is the highest bidder at a foreclosure auction — or if no third party bids at the auction — the property reverts back to the lender and becomes an REO. REOs are owned by banks. Lenders go to great lengths to sell REOs. For banks, however, bank-owned homes are a liability.

Where can I find REOs?

There are several ways to locate bank-owned REO properties. With the advent of the Internet, finding bank-owned REO properties is easy. First, investors can search for thousands of bank-owned properties online at RealtyTrac. Another way to locate REOs is to go directly to lenders themselves. Each lending institution, however, handles REO properties differently. Some lenders post bank-owned real estate lists on their websites. Smaller local banks usually have one individual who is in charge of the bank’s REO inventory. Larger regional and national lending institutions, on the other hand, have large departments that deal exclusively with selling bank-owned properties. Frequently, this department is referred to as the loss mitigation department. The job of the loss mitigation department is to mitigate the loss or minimize the damage caused by loans that have defaulted, which lenders call non-performing loans.

How can I buy a bank-owned REO?

Anyone can buy a bank-owned REO. The challenge for real estate investors is to reach the person who can make the decision to sell the bank-owned REO property. Each lending institution has different rules and requirements on how they sell bank-owned REO properties. Contact the lender and find out what they require to purchase an REO property.

Why should I buy a buy bank-owned REO?

One of the primary advantages of buying a bank-owned REO property is that investors are purchasing a property without liens or other encumbrances. Before lenders make REO properties available for sale, they typically expunge all liens or claims against the property. Any cloud on the title — a second or third mortgage, mechanics liens, taxes or any other liens attached by creditors — are wiped out. Moreover, skilled investors can negotiate with the lender’s loss mitigation department to discount the price to a fraction of its market value. Besides negotiating price, many buyers of REO properties also negotiate favorable lending terms below existing market rates.

What are the advantages of buying bank-owned properties or REO homes?

For real estate investors and home buyers, bank-owned properties and REOs offer opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process. Buying bank-owned real estate offers the foreclosure buyer many advantages:

  • Bank-owned properties are usually sold at below-market prices with great terms like low down payments and low interest rates.
  • Buying bank-owned properties involves less risk and less competition.
  • Foreclosures that are owned by banks are usually clear of any liens that may have been recorded against the property.
  • Since the seller of REO homes is also the lender, you can negotiate with the bank to have them pay for all or some of the closing costs.
  • Bank-owned properties are usually vacant because the banks have evicted the previous owner, saving the investor or homebuyer time, money and emotional toll involved in the eviction process.