When you see a property identified as a "real estate owned foreclosure," it means first of all that the lender has taken the house back from a borrower who failed to make the payments. That's the foreclosure. The "real estate owned" part means the lender hasn't been able to find a buyer for the house.
What is 'Real Estate Owned (REO)'
Real estate owned, or REO, is the name given to foreclosed-upon real estate, such as detached houses, condominiums, townhomes and land, in a bank's portfolio. Such properties end up in bank portfolios after unsuccessful sales at foreclosure auctions. A bank takes ownership of a foreclosed property when no bidder offers the amount it seeks to cover the loan.
When a borrower quits making payments on a home loan, the lender will move to seize the home through foreclosure. The specific procedures and timelines for foreclosures vary according to state and local laws, which provide for waiting periods and appeals. According to RealtyTrac, an online marketplace for foreclosed properties, as of 2012, the process in California averages about four to five months. Elsewhere, the process can take anywhere from a few months to more than a year. The timelines all eventually wind up in the same place, though: The lender takes possession of the home, evicting the residents if necessary.
After a foreclosure, the lender typically puts the house up for auction. It's common for an auction to end without a buyer, because the lender generally won't accept just any bid for the house, aiming to get back what it's owed on the house. The minimum bid will usually be the unpaid balance of the mortgage, plus any costs the lender has incurred up to this point. If no one bids the minimum, the lender is stuck with the property.
REO Specialist Role
A bank's REO specialist manages its REO properties. The REO specialist markets the properties, reviews any offers, prepares regular reports on the status of properties in the bank's portfolio and tracks down deeds. He also works closely with the bank's in-house or contracted property manager to ensure properties are secure and winterized when necessary. The REO specialist undertakes these job functions to help the bank liquidate its properties quickly and efficiently.
REO Properties and Real Estate Agents
To give REO properties the widest exposure, REO specialists often contract the services of local real estate agents to list the properties in the multiple listing service (MLS). Listing REO properties in the MLS ensures that interested real estate seekers using websites like Zillow, Realtor.com and Trulia, as well as local real estate websites, will see the listings. An REO property's listing agent brings any offers he receives to the REO specialist. Real estate agents negotiate the commission they will receive for selling REO properties with the REO specialist. Contact Us to help you locate the lastest available REO properties.
Lenders are usually willing to sell an REO home for less than market value, or at least at the low end of the market range for similar properties. However, buying an REO comes with risks. Such properties will typically be sold "as is," meaning that if there's a hole in the roof, a crumbling foundation or some other issue, it's the buyer's problem to deal with. The lender will be unlikely to chip in for repairs. In addition, lenders usually aren't in a mood to haggle over the price on an REO, so potential buyers should be prepared to pay the asking price. And lenders will favor buyers who make a "clean offer" -- one that has the financing lined up, includes no contingencies, and comes with a substantial earnest money deposit [or even better, is a cash buyer.]
REO Buyer Beware
Banks typically sell REO properties as-is, meaning the buyer buys the home and all the problems along with it. For example, a homebuyer finds her ideal home, and it is an REO property. She decides to make an offer but chooses to have the home inspected first. The results of the home inspection show that there is a problem with the plumbing. Because the subject property is REO, the home inspector's findings are for the prospective buyer's information only; she can make an offer in spite of the findings, knowing that the bank most likely will not repair any deficiencies found by the home inspector. Buyers should also search public records to ensure that all liens have been paid to ensure a smooth closing.
Investopedia - http://www.investopedia.com/terms/r/realestateowned.asp
- RealtyTrac: Foreclosure Auctions
- RealtyTrac: Foreclosure Laws and Procedures by State [South Carolina Foreclosure Laws]
- Redfin: REO Definition
- Washington Lawyers Realty: REO or Bank Owned Homes Explained
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