Whether you’re looking for your next home or your next investment, real estate owned (REO) properties are worth looking into. Often referred to as “bank-owned” or “distressed” properties, REO properties can typically be purchased at a discount compared to the retail market. That’s a great opportunity to buy a home or investment property at a lower price.
While they can be a worthwhile investment, there’s a lot to know about buying a real estate owned property. Learn what REO properties are, where to find them, and important things to know about buying them in this guide.
What are REO properties?
REO properties are properties owned by a bank or other institution after going through foreclosure. REO stands for “real estate owned.” If a property doesn’t sell at a foreclosure auction, it becomes an REO property and can often be purchased at a discount.
Banks create mortgage loans using two documents — a note and mortgage. The note outlines the terms of the loan, such as interest rate, payment amount, and length of the loan.
The mortgage is a security instrument used to protect the bank in the event the buyer doesn’t pay according to the terms of the note. If the buyer defaults, the bank can foreclose on the property in order to recoup their initial investment.
When a foreclosure property becomes an REO
The foreclosure process requires that the property is sold at a public auction. Most auctions have a minimum bid amount, meaning the property won’t be sold until the minimum bid amount is met. Banks strategically set the minimum bid. Some keep it low, offering a large discount compared to the current market value to increase the likelihood of the property selling at auction.
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