Definition of Foreclosure

What is an REO foreclosure?

The acronym “REO” stands for “real estate owned.” When a property goes into foreclosure and fails to sell at auction, it becomes an REO foreclosure, which means that the lender is the owner of the property.

Foreclosure sales and REO

When a borrower stops making payments on his mortgage, the bank typically forecloses on the property to recover the remaining debt on the mortgage. Toward the end of the foreclosure process, the lender will attempt to sell the property at an auction. In most cases, the bank will set the opening bid equal to the amount of the outstanding mortgage. If no one bids on the property, the bank will repossess it. In most cases, the bank adds its REO properties to local real estate listings and attempts to sell them on the regular market.

Buying REO property

As long as the home is in good condition, purchasing an REO property can be very beneficial for the buyer. When you purchase an REO home, you will deal directly with a bank, rather than a private seller. Because the bank is paying to maintain the property but isn’t earning any income from it, the bank may be willing to accept an offer that is significantly lower than the property’s fair market value. Furthermore, because the home is already empty, you won’t have to wait for anyone to move out before you can take possession.

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