What is an REO Property?

REO stands for a Real Estate Owned property.

Real Estate Owned Properties are properties that either were not sold at auction or were properties that the bank or lender accepted the deed of trust in lieu of foreclosing on the home. In each situation, the lender or bank takes the title to the home and the property becomes part of the bank’s or Lender’s inventory.

Some people in the industry call this an REO (Real Estate Owned) property. This kind of foreclosure can also be called ORE (Owned Real Estate) or bank-owned (bank owned property).

Currently, most states are experiencing an upsurge in the rate of foreclosures. Some people in the real estate industry are concerned that we are at the beginning of a major downturn in the housing market, alternatively referred to as The Real Estate Bubble.

RealtyBargains.com is not our place to speculate on where the market is going, but one thing for sure is: There are historic opportunities to purchase homes from 30% to 50% below market value.

For this very reason, banks are increasingly motivated to make deals that they might not have made only a few months ago. Mortgage banks do not want to own a large inventory of homes.

There are several reasons that mortgage banks are fearful of owning too many properties. To better understand the dynamics in the foreclosure housing market, it is important for a home buyer and investor alike to understand the psychology and fear of mortgage banks in the current housing market. Some of the most obvious reasons mortgage banks are terrified of the prospect of owning too many homes are the following:

  1. The foreclosed home might be in poor condition, therefore making it more difficult to sell quickly.
  2. The longer a mortgage home sites with a property, the larger their expenses and overhead.
  3. Mortgage banks are required to hold a certain percentage of money in reserve to cover their "non performing assets."
  4. A mortgage bank might be reluctant to advertise many foreclosure homes because it is likely to hurt their public image. (If the mortgage bank is a publicly traded company then they are all the more concerned about investors being concerned).
  5. Also, there are federal regulations that prevent mortgage banks from "dumping" many properties in a neighborhood.

For these reasons, mortgage banks are becoming more open to negotiating down the price to avoid a foreclosure all together. If they do take back the deed, then you can be assured they will want to unload the property as quickly as possible.

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