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| Understanding REOs By Carol Trentacosta REO is a commonly-used acronym for "real estate owned" by banks. Instead of an individual person or persons owning the property as in a typical resale transaction, a bank owns the property instead. The bank acquires title to its REO properties through the foreclosure process. However, REO properties may also be acquired through other means, such as deeds in lieu of foreclosure, tax sales or corporate housing. The high volume of REO sales is a result of the high volume of foreclosure sales recently, as well as the nature of foreclosure sales. When a property is foreclosed upon, the mortgage lender often acquires title to the property at the foreclosure sale, although it's possible that someone else acquires title. More specifically, when an owner fails to make mortgage payments, the lender may commence the foreclosure process to sell the property to satisfy the defaulting borrower's debt secured by that property. In California, foreclosure is commonly handled through a trustee's sale (not court action) where the property is sold to the highest bidder at an auction open to the public. At the trustee's sale, the foreclosing lender may make a credit bid in the amount of its unpaid debt plus foreclosure costs, but the trustee typically requires any other accepted bid to be paid in the form of cash or cash equivalent. Because of this cash requirement, rarely does anyone outbid the foreclosing lender at the trustee's sale. Once the foreclosing lender acquires title to the property by trustee's deed, the property becomes part of that lender's REO portfolio. Buying a property from an REO lender may be less risky than acquiring a property at a trustee sale as a foreclosure sale purchaser often has no opportunity to inspect the interior of the property before buying it. Acquiring title to an REO property may also be less risky because an REO lender is likely to take care of certain title issues, such as unpaid property taxes. It can be very difficult for a buyer to obtain title insurance when acquiring property at a trustee's sale, but not an REO sale. As one of Windermere's twelve REO Directors I would be happy to answer any questions you might have in regard to the purchase of an REO. | |
