What Are REO Properties?

What Are REO Properties?
  • Opening Intro -

    Homes that have passed through the foreclosure process are known as real estate owned properties.

    Also called bank-owned properties, these homes revert to the lending authority -- a bank or mortgage company -- once the home has been foreclosed.


Failure by homeowners to make scheduled mortgage payments triggers the foreclosure process which leads to a home eventually becoming an REO property.

REO Defined

Not all homes in foreclosure are real estate owned properties. When a home is foreclosed, it may become available for auction. If the bank is unable to satisfactorily find a buyer at auction, then it takes possession of the home, manages it and will attempt to find a buyer later. Some homes are bought at auction, freeing the bank from the responsibility of home management.

REO Ownership

Real estate owned properties are scattered throughout the country, with higher concentrations in some markets including Las Vegas, Phoenix and across much of Florida. Foreclosed homes eventually make it back on the market, with some banks providing lists of homes it owns to interested buyers or investors. Your bank’s mortgage servicing department can direct you to the right department or person who handles REO properties. Also, a real estate agent who specializes in foreclosures will know which homes are REO properties.

summary: all about managing your mortgage loan

Lender Burden

Home shoppers looking for a good deal on a property may consider purchasing REO properties. Banks are not interested in managing properties as REO homes require maintenance, the payment of property taxes and homeowner association dues, and the coverage of other maintenance costs including homeowner’s insurance, landscaping and security. The longer an REO property stays in its portfolio, the costlier the home is to the lender.

Consumer Deal

When shopping for a foreclosed home, consumers can expect to find prices that are slightly lower to significantly lower than comparable homes in the neighborhood. Much caution must be exercised, however. Foreclosed homes are usually in substandard condition as cash strapped homeowners likely have put off needed repairs in advance of losing their homes. Hiring a qualified home inspector is important, particularly someone who has dealt with REO properties. Most REO homes are sold “as is,” however consumers can still negotiate the price if they can demonstrate what repairs are needed and the costs involved with bringing a home up to a living condition. Home buyers should obtain estimates of repairs and use that information as leverage when negotiating the price of a foreclosed home.

Competitive Market

Home shoppers should be aware that other consumers are looking for REO homes too. This means that a bidding war could break out, especially in neighborhoods where a desirable REO is found and its price is well below neighborhood comps.


USDA: Real Estate Owned

Federal Reserve Bank of San Francisco: Foreward — Real Estate Owned

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Last update on 2020-03-20 / Affiliate links / Images from Amazon Product Advertising API


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Categories: Home Buying

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".