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The Basics About REO Homes



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By : Karim El Sheikh    99 or more times read
There are many acronyms and key phrases associated with the current housing market, including HUD, FHA, short sale, foreclosure, and REO, to name a few. As an inexperienced home buyer you may feel intimidated by this long list of jargon that tends to remain outside of the vocabulary of the average American. These things are not really that difficult to understand, however, as long as you know where to look for information. This article will help you understand REO homes, so that you can make a more informed decision during your search for a new home.

REO stands for Real Estate Owned, and references a specific class of property available for purchase on the market. REO homes are categorized as such because they are not owned by an individual or investment group, but instead belong to a bank, lending institution, government agency, or other official loan insurer. This may sound similar to a house that is foregoing foreclosure, but an REO home is actually slightly different.

When a home owner cannot pay their mortgage, and have excessive outstanding loans, the entity that provided those loans will take possession of the house, or foreclose on it. Once a home has faced foreclosure, it is put back onto the market, typically at a foreclosure auction. Normally the starting price of one of these homes will be equivalent to the outstanding loan taken out on the property, which can present incredible deals for cheap, discounted homes.

This price reduction is not always the case in foreclosure, however. Sometimes the outstanding loan will be higher than the current market price of the home, and buyers will not be interested in purchasing in. Once a property has failed to sell at a foreclosure auction, the loan providing beneficiary will repossess the property. It then becomes categorized as a non-performing asset, and enters the books as an REO property.

Once a property has reached REO status, the new owning entity will still want to try to sell the property. In some cases they will try to do this themselves, but many banks and loan providers employ the services of an REO asset manager. REO asset managers specialize in moving bank-owned properties in specific localities. Often times these properties are purchased by real estate investors at a discounted rate.

REO homes can be left unattended for long periods of time while no one is occupying them. For this reason they tend not to be in the best condition, often needing repairs. Additionally, any grass or plants on the property have typically died due to negligence. Real estate investors are not turned off by these aspects in the way most people in the housing marketing would be, and they see them as an opportunity to make improvements, which leads to making profits.

Also, there are certain property preservation laws that dictate the upkeep of a property. While these laws will not keep a home looking shiny and new, they do help to maintain a certain level of upkeep. In order to fulfill these regulations, some banks and lending agencies that have acquired an REO home will enlist the help of a special property preservation company that will work to maintain some aspects of the house, including vegetation maintenance, repairs, winterizing, debris removal, and security jobs, such as boarding windows or changing locks.
REOproperty.org is the place to search and find all REO homes nationwide. Search your area for all REO property deals.

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