REO stands for Real Estate Owned. Real Estate Owned is real estate property owned by a lender, usually a bank, a mortgage company, or other institutional lenders, following an unsuccessful foreclosure auction sale. Foreclosure is ordered when the owner of the real estate property fails to repay the loan borrowed with the property as collateral. In case of a foreclosure, the lender acquires the right to take possession of and sell the property in accordance with the terms stipulated in the mortgage contract, to fulfill the debt.
A foreclosure auction sometimes doesn’t necessarily make a lucrative sale for the bank due to a variety of reasons. A major dampener being that the property owner’s debt is usually more than the market value of the real estate on sale. As such, the title is retained by the bank itself. A foreclosed property is a major encumbrance for banks, for it necessitates financial allocation as capital reserve, and secondly the management of the property is in itself an unwanted task.
On possession of the property by the bank or other financial institution that holds the lien, any encumbrance associated with the property such as tax liens, HOA fees, etc., are managed by the institution itself. Damages are repaired to make the property more attractive for buyers.
This message was edited 1 time. Last update was at 14/01/2010 14:28:48
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