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What is “REO” property?

“REO” also known as, “OREO”, is a term used to identify property that has been taken back by the lender as a result of either a deed in lieu transaction, or a foreclosure sale. Following a foreclosure, (sometimes called a “mortgagee’s sale”) if the lending institution ends up becoming the owner of the foreclosed property, they carry it on their books as “Real Estate Owned” (REO) or “Other Real Estate Owned”, (OREO). This is to distinguish it from other real estate investments the lender may have, such as office buildings or branches. The lender will end up owning the property if they are the highest bidder at the foreclosure auction. That has a lot do with their bidding strategy and who shows up on the day of the auction to make bids. The lender is required to try and recover as much of it’s indebtedness as possible, but in some cases, and for a variety of reasons, they can end up owning the property, themselves.

A “deed in lieu” of foreclosure enables the lender to take the property back without going through the actual foreclosure process. Lots of times, borrowers are anxious about the stigma associated with having a real estate foreclosure on their credit file, so they will make a deal to transfer title to the lender, in lieu of foreclosure proceedings.

The end result is the same, the borrower no longer owns the property and the lender takes the title back and transfers the property to “REO”, as real estate owned, and then makes arrangements to sell it to a new buyer. REO property can be purchased like any other property, either directly from the lending institution, or through a Realtor they hire to market the property for them.

It can sometimes be the best way for a buyer to take advantage of a slowing market. The lender will usually be motivated to get the “REO” off its books and the buyer can negotiate a pretty good deal in most cases. Your Realtor can help you to locate REO property and to negotiate the best price and terms for you to take advantage of an REO sale!

Barbara Cunningham

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