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Foreclosure processBank-owned (REO)

REO / Bank-Owned Property

Also called REO, Real estate owned, Bank-owned home

In short

An REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

Seller
The lender or loan investor
How it's sold
Listed with an agent, as-is
Financing
Usually allowed
Title
Lender typically clears most liens

Where it fits in a foreclosure

REO / Bank-Owned Property belongs to the bank-owned (reo) stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.You are here
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.

How a property becomes REO

When a foreclosure auction ends without a third-party bid above the lender's credit bid, the lender takes title. The property is now on the lender's books as real estate owned. The lender typically secures it, handles any eviction, may do limited repairs, and then lists it for sale.

Buying an REO

REO homes are usually listed on the open market, so buyers can tour the property, order a home inspection and use a mortgage. Most lenders sell as-is and add their own addendum to the purchase contract, which often limits the seller's obligations and sets tight deadlines.

Lenders often require proof of funds or a pre-approval letter with every offer, and responses can take longer than with an individual seller.

Advantages and drawbacks

  • Advantages: clearer title than at auction, access for inspection, financing options and usually a vacant property.
  • Drawbacks: as-is condition, repair needs from vacancy, bank addenda that favor the seller, and competition from investors.
Example

Negotiating an REO purchase

A bank lists an REO at $240,000. A buyer's inspection finds $18,000 in roof and plumbing work. The bank will not make repairs, but agrees to a price of $228,000. The buyer finances with an FHA 203(k) loan that includes the repair costs, and the bank's addendum requires closing within 30 days.

REO / Bank-Owned Property vs. Foreclosure Auction

REO / Bank-Owned Property

An REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.

Foreclosure Auction

A foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.

The differenceAn REO is bought from the lender after the auction, usually with inspection access and financing. A foreclosure auction purchase is made at the sale itself, usually with cash, no inspection and more title risk.

Frequently Asked Questions

Related terms

As-Is SaleBuying & closingAn as-is sale means the seller will not make repairs or offer credits for the property's condition. The buyer accepts the home in its current state, though inspection rights and required disclosures may still apply.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.Title InsuranceBuying & closingTitle insurance protects a buyer or lender against losses from ownership problems that existed before the purchase, such as undisclosed liens, forged documents or recording errors. It is paid once at closing.Cash for KeysForeclosure processCash for keys is a payment a lender or new owner offers to occupants of a foreclosed property in exchange for moving out by a set date and leaving the home in agreed condition, avoiding eviction.FHA 203(k) LoanMortgages & financingAn FHA 203(k) loan is a government-insured mortgage that combines a home's purchase price and the cost of repairs into one loan. It lets owner-occupants buy and fix up homes that need work.Zombie PropertyForeclosure processA zombie property is a home the owner has vacated during foreclosure, but where the lender has not completed the foreclosure, leaving it empty with the original owner still holding title.ForeclosureForeclosure processForeclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.Credit BidForeclosure processA credit bid is a bid at a foreclosure auction that the lender places using the debt it is owed instead of cash. The lender can bid up to the amount of its debt without paying any money.

Learn more in the knowledge base

What Is a Bank-Owned (REO) Property? A Buyer's OverviewGuide · 6 min readA bank-owned, or REO, property is a home the lender took back after a foreclosure auction failed to attract a high enough bid. Lenders usually clear title and list these homes through agents, which makes them the most accessible type of distressed property for most buyers. They are sold as-is, though, and often need work.How to Buy a Bank-Owned Home: A Step-by-Step GuideGuide · 6 min readBuying a bank-owned home looks like a regular purchase, but the seller is a lender with its own forms, deadlines and approval process. This guide walks through each step, from getting financing in place to closing, and points out where REO deals differ from a typical sale.Inspecting and Negotiating on a Bank-Owned (REO) PropertyGuide · 7 min readBank-owned homes are sold as-is, often after sitting vacant, so a thorough inspection is the most important step in the purchase. This guide covers how to get the home ready to inspect, what to look for, what banks will and will not negotiate and how to handle appraisal and title issues before closing.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.