It’s the hot topic today, “Buy REO’s!”, we’ve all heard it. But what is an REO?
Real Estate Owned (REO) properties are owned by a lender. A lender could be a bank such as Wells Fargo or Bank of America, a Government Sponsored Entity (GSE) such as Fannie Mae or Freddie Mac, or a private individual or company who lent someone money to buy real estate. REOs are also referred to as Bank Owned, if the lending institution was a bank. They are a form of distressed real estate not to be confused with Short Sales.
When a person or entity buys real estate with a loan and they fall behind on their payments, it’s called default. When someone defaults on a loan, the lender will initiate the foreclosure process to take control of the property. In California, the most common way to lend on real estate is through a Deed of Trust. In this situation, if an owner defaults, the lender will have the trustee start the foreclosure process.
After proper notice and time, the trustee will hold a trustee sale to auction off the property. The lender will typically open the bidding at the outstanding balance of the loan; which in today’s market, is typically far higher than the value of the property. Therefore, no one usually out bids the lender. If the lender wins the auction, they are now the new owner of the property, and the property is considered to be REO.
The lender will then take steps to sell the property on the open market to recoup as much of their original loan as they can.
REOs can be a great investment because you can often find wonderful houses and acquire them at less than market value. Some REOs are in poor condition and need some loving, but not all distressed property sales fit the stereotype, and many are move-in ready.
Powered by Facebook Comments