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What are REO's and how do they work?

A Real Estate Owned (REO) is a property that was not sold at the auction to a bidder or the bid's were not higher than the Lender's "minimum bid" and was therefore taken back by the lender. Since lenders are not in the business of managing real estate, they are willing to sell the REOs quickly to interested homebuyers or investors. Usually, they are turned over to a "Lender appointed Realtor" who then places them up For Sale on the market.

The Lender is selling the property to recover their costs on the defaulted loan. These costs may or may not include delinquent taxes, fees, any liens and realtor fees.

For HUD/FHA/VA properties, the sale price may be set at "Fair Market Value" and there is an open period when all bids can be submitted; the highest qualifying bidder who will "home occupy" wins. In the case of no bids during this period, the property may be reduced and can be purchased by investors or anyone else. HUD sometimes offers "Special Discounts" for properties that do not sell within a period of time, usually 90 days.

REO's are post-foreclosure properties and sometimes can be purchased at discounts due to condition of the property or other circumstances. The benefit of post-foreclosure properties is that a mortgage can be obtained over a period of time in lieu of auction sales which require "payment in full within a designated time frame, usually a few hours or less". The lenders sometimes provide lists of REO properties to potential investors directly or they will refer you to the appointed Realtor for further information.