REO (Real Estate Owned)

January 1, 1 6 min read REO Foreclosure Bank-Owned Properties Real Estate Real Estate Investment Property Auctions Lender Inventory Distressed Properties
Real Estate Owned (REO) refers to properties that have reverted to the lender, typically a bank, after an unsuccessful foreclosure auction. These properties are then listed for sale as part of the lender’s inventory.
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Real Estate Basics: REO (Real Estate Owned)

Definition

Real Estate Owned (REO) properties are assets that a lender, typically a bank, holds after an unsuccessful attempt to sell them at a foreclosure auction. These properties are often sold through traditional real estate channels and may be attractive investment opportunities due to potential discounts and motivated sellers.

Examples

  1. Residential Properties: Single-family homes, condos, or townhouses that have been repossessed by the bank due to the prior owner’s inability to keep up with mortgage payments.
  2. Commercial Properties: Office buildings, retail spaces, or industrial properties that have fallen back into the bank’s possession for similar reasons.
  3. Multi-Family Units: Apartment buildings that were taken over by the lender.

FAQs

  1. What is the difference between REO and foreclosure?

    • Answer: Foreclosure is the process where the lender attempts to recover the amount owed on a defaulted loan by selling the property securing the loan. If the property does not sell at the foreclosure auction, it becomes Real Estate Owned (REO).

  2. How can one purchase an REO property?

    • Answer: You can purchase REO properties through traditional real estate transactions. They are often listed by the bank or through real estate agents that specialize in distressed properties.

  3. Are REO properties cheaper than other properties on the market?

    • Answer: Often, REO properties can be acquired at a discount because the bank is looking to recoup any losses quickly. However, they can require significant repairs.

  4. What are the common risks associated with buying REO properties?

    • Answer: REO properties may need extensive renovations, have liens, or carry additional costs. It’s crucial to perform due diligence, including property inspections and title searches.

  5. Do banks finance REO properties?

    • Answer: Yes, banks and other financial institutions do finance the purchase of REO properties. They might even offer better terms to facilitate the sale.
  • Foreclosure:
    • The legal process by which a lender takes control of a property due to the borrower’s failure to maintain mortgage payments.
  • Short Sale:
    • A sale in which the bank allows the property to be sold for less than the outstanding mortgage balance.
  • Distressed Property:
    • A property that is under foreclosure or being sold by the lender.

Online Resources

  • HUD Homes: hudhomes.com
    • A portal for buying REO properties owned by the U.S. Department of Housing and Urban Development.
  • RealtyTrac: realtytrac.com
    • An online marketplace for foreclosed and bank-owned properties.

References

  • U.S. Department of Housing and Urban Development (HUD): A resource for regulations and listings of REO properties.
  • RealtyTrac: Provides statistics, market data, and listings for foreclosures and REO properties.

Suggested Books for Further Studies

  • “The Book on Investing in Real Estate with No (and Low) Money Down” by Brandon Turner
  • “Real Estate Investing for Dummies” by Eric Tyson and Robert S. Griswold
  • “Foreclosure Investing: Learn the Basics & Buy REO Properties” by Royce Anderson

Real Estate Basics: REO (Real Estate Owned) Fundamentals Quiz

### What does REO stand for in real estate terminology? - [x] Real Estate Owned - [ ] Real Estate Office - [ ] Real Estate Opportunity - [ ] Return on Equity > **Explanation:** REO stands for Real Estate Owned, referring to properties owned by a lender due to an unsuccessful foreclosure auction. ### How does a property become REO? - [ ] The property is sold at auction. - [x] The property fails to sell at a foreclosure auction. - [ ] The owner voluntarily transfers ownership to the bank. - [ ] The property remains unsold on the market for over a year. > **Explanation:** A property becomes REO when it fails to sell at a foreclosure auction and reverts to the lender. ### What are some potential benefits of purchasing an REO property? - [ ] Usually brand new condition - [x] Potential for purchasing at a discount - [ ] Typically does not require any due diligence - [ ] Avoids any broker fees > **Explanation:** REO properties can often be purchased at a discount, making them attractive investment opportunities despite possible required repairs. ### What must buyers be cautious of when purchasing an REO property? - [ ] Investment returns - [ ] Mortgage rates - [x] Property needs and additional costs like liens or repairs - [ ] Property location > **Explanation:** Buyers should be cautious of additional costs such as liens, repairs, and ensuring thorough property inspections. ### Who generally holds ownership of REO properties? - [ ] The former homeowner - [ ] Government housing agencies - [x] Banks or financial institutions - [ ] Private investors > **Explanation:** Banks or financial institutions generally hold ownership of REO properties after an unsuccessful foreclosure auction. ### Are REO properties always cheaper than market value? - [ ] Yes, they are always offered below market value. - [x] Often, but not necessarily - [ ] No, they are always priced at market value. - [ ] It depends on the neighborhood. > **Explanation:** REO properties are often, but not necessarily, cheaper than market value as banks aim to recoup losses quickly. ### When buying an REO property, what essential step should an investor not skip? - [ ] Choosing a preferred mortgage provider - [ ] Negotiating property price - [x] Performing a property inspection and title search - [ ] Calculating potential rent > **Explanation:** Investors should not skip performing a property inspection and title search to uncover potential issues that could entail additional costs. ### Can buying REO properties be a risk-free investment? - [ ] Yes, since they are backed by banks. - [ ] No, they are always risky. - [x] No, they can involve risks like extensive renovations or hidden liens. - [ ] Yes, any former owner liabilities are cleared. > **Explanation:** While potentially rewarding, buying REO properties can involve risks such as needing renovations or dealing with concealed liens. ### Do REO properties come with clear titles automatically? - [ ] Always - [ ] Never - [x] Not necessarily - [ ] Yes, if sold directly by the bank > **Explanation:** REO properties do not necessarily come with clear titles, and buyers should conduct title searches to ensure they are free of liens. ### How are REO properties typically sold? - [ ] At highly-publicized auctions - [x] Through traditional real estate channels - [ ] Via exclusive internal bank processes - [ ] On digital currency markets > **Explanation:** REO properties are typically sold through traditional real estate channels, often involving real estate agents and listings.
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