Frank Napoli

REO (Real Estate Owned) / Foreclosed Properties

A property becomes a REO (Real Estate Owned) when there has been an unsuccessful foreclosure auction. Many of the foreclosed auctions don’t yield a bid. The auction is unsuccessful because there is insufficient equity in the property to satisfy the loan. It seems obvious, that were there sufficient equity, the homeowner would have sold the property and paid off the loan.

Foreclosure or Trustee Sales have a minimum bid that includes the balance owed on the loan, interest on the loan, attorney fees and other costs incurred during the default process. Anyone who wants to bid on the property must have a cashier check for the full amount of the bid. All properties are sold “As Is” and often are encumbered with other liens that the new owner may be responsible for.

When there is no sale at the auction, the property reverts back to the lender. This is when it becomes an REO or “real estate owned” property.

Once the bank owns the property the mortgage loan no longer exists. The bank usually handles eviction, if necessary, and may do some repairs. They will negotiate with the IRS to remove tax liens and bring the homeowners association dues current. When you purchase a REO property, you will receive a title insurance policy and have the opportunity to inspect the property.

There can be some really good deals out there but it is important to do your homework. Often, working with a competent real estate agent who is experienced in writing offers on REO properties can save you thousands in the long run.