What is an REO?
An REO house means real estate owned by the bank. Also called a bank foreclosure, this frequently happens once a home owner defaults on a mortgage, forcing the bank to buy the house back at a foreclosure auction.
REO is an acronym for real estate owned and is industry jargon for foreclosure property repossessed by banks or lenders.
If a lender or bank is the highest bidder a foreclosure auction — or if no third party bids at the auction — the property reverts back to the lender and becomes an REO.
REOs are owned by banks. Lenders go to great lengths to sell REOs. For banks, however, bank-owned homes are a liability.
What are the advantages of buying bank-owned properties or REO homes?
For real estate investors and homebuyers, bank-owned properties and REOs offer opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process. Buying bank-owned real estate offers the foreclosure buyer many advantages:
• Bank-owned properties are usually sold at below-market prices with great terms like low down payments and low interest rates.
• Buying bank-owned properties involves less risk and less competition.
• Foreclosures that are owned by banks are usually clear of any liens that may have been recorded against the property.
• Since the seller of REO homes is also the lender, you can negotiate with the bank to have them pay for all or some of the closing costs.
• Bank-owned properties are usually vacant because the banks have evicted the previous owner, saving the investor or homebuyer time, money and emotional toll involved in the eviction process.