Understanding What a Property in REO Means

How the bank becomes the property owner?

Foreclosure is usually a legal process where a real estate property that has been secured using a mortgage or even deed of trust is usually sold to cover a debt. After the foreclosure sale, the foreclosing bank can credit bid up to the total debt amount as well as the foreclosure costs and fees. All the other parties should bid in cash or its equivalent such as cashier’s check.

In most of the cases, when the bank is the highest bidder during the foreclosure sale, the properly can then be considered to be REO. It is also possible for the bank to get the property’s ownership using a deed in lieu of foreclosure.

What will happen to the REO property after the foreclosure?

After a property has become REO, it is the role of the servicer of the loan to ensure the property is secure, and will change the locks after the property is vacant. Any emergency repairs will also be done to prevent deterioration or damage to the property. When the property becomes REO, the servicer of the loan will have a sense of the occupancy and condition of the property. The reason for this is after the loan has gotten into default, during the foreclosure process, the servicer of the loan can request for a periodic drive-by inspection of that property.

Role of REO Management Companies

There are moments when the loan servicer hires an REO Management company to help in the disposition of the REO property following foreclosure. The role of the REO management companies is to provide;

  • Eviction services
  • Redemption
  • Market analysis
  • Maintenance of the property such as removal of debris, landscape services, and repairs
  • Market services
  • Title services
  • Closing services

Once an REO property gets occupied, the servicer or even the REO management company can offer a deal in cash-for-keys that is meant to induce the tenant as well as the other property owner to come out of the property before an eviction can be completed. There are states and municipalities that have created notice protections and requirements for the tenants who are occupying the foreclosed properties.

How to buy a REO property

After a property is vacant, an REO management company will create a strategy for marketing it. Depending on the price opinion of the broker or appraiser, there will be a set sales price. After making an offer to purchase the REO property, this may require reviewing as well as approval by different individuals such as asset managers prior to approval.

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