Stated simply, an REO or real estate owned is property that has reverted to the lender after the foreclosure process. When a property is foreclosed by the lender, there is usually a foreclosure auction or Trustee Sale. If the property is not bought by anyone during the Trustee Sale, then the lender buys back or takes back the property. Therefore, the property becomes real estate owned by the bank, credit union, mortgage company or whatever the case may be.
The best part of REOs, for those who are looking to perhaps get into the foreclosure side of the real estate business, is that the lender will generally handle the removal of any liens on the property, evict any occupants therein if it is required, and prepare for the issuance of a property title to a new buyer upon closing. The bad part is that REOs are exempt from disclosure laws in some areas, so you would really need to know if this is true in your particular area so that you do not run into any problems.
REOs are thought to be a bargain, since it is assumed that lenders are looking to get rid of the property. The fact is that, although lenders are looking to move the property quickly, they are also looking to recover any losses and expenses they might have incurred from the loan default and the foreclosure process. Therefore, a lender is going to look to get as much as possible from the sale, and the property will not be given away, as some people might assume.
A foreclosure, when it comes to real estate, occurs when the lender or the secured lien holder takes over the property or repossesses it because the borrower has defaulted. A borrower is said to have defaulted when he/she fails to meet the terms of the deed trust or mortgage loan agreement. This is the default of payment of the promissory note, which then leads to foreclosure proceedings.
When the foreclosure process is done, the Trustee Sale or foreclosure auction takes place, and anyone who is interested may bid on and buy the property. However, if you are planning on buying foreclosed property, be aware that the property will come as is, including tax liens, occupants, and loan balances.
If you decide to buy the foreclosed property, eviction, tax payments, and loan balances will be your responsibility. You will also have to show up at the auction with cash on hand, in the form of a cashier's check, on the day of the auction. The auction usually takes place at the county courthouse where the property is located.
People who are interested in getting into the foreclosure business are usually advised to begin with REOs because they present less problems. However, begin by studying foreclosure law in your particular area, and all that is involved. Investigate REOs and everything relating to them, and acquire the knowledge you will need. Once you are acquainted with the law, you can look to gain some experience with REOs and then move to foreclosures, but do not be in a rush, or you could end up spending a whole lot more than you bargained for.
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