What Are Real Estate Owned Properties?

Concept of REO Properties

If the tenant or lessee is not able to pay the final amount, the property may reach the foreclosure process. In foreclosure process, the property may be offered on auction. Property is offered on auction means that it is offered for sale through the auction by the lender. In many of these deals, the lender may be a bank or a financial institution. In such deals, the total amount that the bidder has to pay to the lender to become the owner of the property is more than its market value. No bidders stand in such foreclosure auctions and the auction ends without sale. If there is no result of such an auction, then the property would revert to the lender or the financial institution. These properties are termed as the real estate owned properties. REO is an abbreviated form of the real estate owned properties.

What happens after the auction is closed without a sale?

After the property reaches back to the lender, the mortgage loan (if there is any mortgage loan on the property) disappears. The lender in such situation becomes the evictor and evicts the current owners. Damages are repaired to make it attractive for the potential buyers. The buyers should purchase a REO property because they can get good leverage. The buyers can also resell it quickly to earn profit.

Why Banks or financial institutions will always want to sell a REO property?

Banks or financial institutions will always want to sell a REO property and will never like to keep it because they only need the maximum returns from these properties. There are two main reasons why a bank or a financial institution will want to sell an REO property soon. The first reason is that the banks always prefer liquidity in money and would never like their money caught in properties because the liquidity in money will help the banks to earn interest. The second reason is that the properties need regular maintenance which is not possible for the banks.

How the Banks or financial institutions sell REO properties?

When it comes to selling, the banks employ a separate department dedicated to manage the foreclosure process. The selling process may start when a capable buyer contacts the bank or the financial institution to purchase a REO property. In such cases, the bank or the institution will reply by making a counteroffer and the capable buyer can then respond to the counteroffer. If the terms and conditions along with the price of the property are agreed between both the parties, the REO property can be sold to the buyer by the bank or the institution.