What is REO? Lenders offer mortgage loans to people who are looking to buy a home. The lenders or banks see this loan as an investment because they profit from the interest generated. When the person who took the loan out is unable to make their payments, the lenders will seize the property. Once they have possession of the property, they attempt to sell the home to salvage their investment. The home is then sold at a foreclosure auction. If the property doesn’t sell at an auction, it becomes an REO property. REO stands for real estate owned, which just means the home has been foreclosed, didn’t sell at an auction and now is in the possession of the bank. More often then not, homes do not sell during foreclosure auctions and fail to bring in any bids. Lenders do not set the price of the home based on its market value. Instead, they try to make up the money they lost when they issued the loan. The minimum bid price usually includes the remaining mortgage loan balance that hasn’t been paid, costs accrued during the foreclosure process, and of course attorney fees. In some markets, the asking price can be way above the market value and thus garnering no interest during the auction. The banks end up owning a property they cannot sell but still need to in order to make up for their lost investment. Once the property becomes an REO property the lender needs to prepare the house for sale. They use property preservation companies to ensure property is vacant, secure the property, and any other general maintenance the property will need. Lenders do not want to spend more money on a property than they already have, so they limit repair work on REO properties and sell them as is. When the property has been prepared for sale the lender will work with a real estate agent to get the property on the market.

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