Real estate owned properties are those whose ownership is still held by the bank (or other real estate lender), in the aftermath of an unsuccessful foreclosure auction.
Normally, when bankers and other lenders lent for real estate development purposes, they get the property they are financing as 'security' for their loans. This is to say, in event of the borrower being unable to repay the loan used in developing the property, the bank (or any other lender in question) would repossess the property, and then auction it to recoup their money.
But it so happens sometimes that upon the borrower failing in their obligations for the property, and the house being put up for sell through an auction, it is still not bought; for one reason or another. Such a property is now held by the bank/lender in question, and it is referred to as a 'real-estate owned' property.
Banks (and other lenders) are of course not in the business of real estate. They typically don't have the interest to go about managing properties - and are therefore usually keen to sell the properties that happen to be in their possession as real-estate owned properties, as soon as possible.
Indeed, real-estate owner properties reflect on the bank's/lender's accounts as 'non performing assets' - and this is a bad reflection. Banks and other lenders are usually keen to have as few of these 'non performing assets' on their books as possible. The 'non performing assets' of which real estate owner properties are an example are effectively money that is 'frozen' from the banks'/lender's perspective. Indeed, as the bank continues holding the real estate owned properties, it is aware that they are likely to be depreciating, meaning that it is not only 'freezing' its money in them, but actually also losing money through the depreciation of the real-estate owned properties. As such, it is the in the banks' best interest to get rid of the real estate owned properties as soon as possible.
In a bid to get rid of the real-estate-owned properties as soon as possible, it becomes imperative to lower its prices, and it is here that the opportunity to get an otherwise great house being sold for a song lies, if you go shopping for real estate owned properties.
To be sure, many of these real-estate owned properties do tend to be in run down conditions. Yet even taking this into consideration, the difference between the prices at which they are sold and the prices of similar properties in the market tend to more than make up for the costs to be incurred in the repair of the properties.
There are two methods through which banks and other lenders sell real estate owned properties: through the real estate brokers, or by advertising the properties, and then selling them off themselves.
So the next time you see an advert for real-estate owned properties, see in it the opportunity to own what can potentially be a very nice house at what can turn out to be truly fantastic price.