What Is REO Foreclosure?
A foreclosure is the process of using a home's value to repay a lender when a borrower falls behind on payments. The foreclosure process takes some time, up to a year in some states. A common result of the process is an REO, in which the lender sells the foreclosure on the open market. At this point, there is nothing that the previous homeowner can do, but interested buyers may be able to find good deals.
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Foreclosure Sale
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A foreclosure culminates in a foreclosure sale, the process by which the home is turned into cash for the lender. In normal circumstances, the court will carry out a foreclosure auction. Buyers and other interested investors attend this auction, where they can bid on the foreclosure as long as they bid at or over the amount the lender is still due on the mortgage. With a successful auction, possession of the property is transferred to the bidder and the lender receives the necessary funds. If this auction fails, the result is an REO.
REO Property
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REO stands for real estate owned. Many foreclosure auctions end without a winning bid, either because no one was interested in bidding at all or because no one could gather enough cash to pay for the mortgage amount on the property. In this case, the court turns the property over to the lender permanently, awarding it full possession of the house and evicting the previous homeowners. The lender must now sell the property on the real estate market to recover any value from it.
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Lender Actions
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Lenders are not anxious to own property. It is not their business and trying to sell property on the market wastes both time and money. Unfortunately, lending organizations like banks must deal with a large number of foreclosures anyway, so they tend to hire real estate agents to represent them in certain areas. These agents manage all the foreclosed properties, which are marked REO in the logs and lists that agents use so other brokers will know they are bank-owned.
Buying REO
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Buyers often pursue REO properties to their advantage. It is a common tactic for lenders to set low purchase prices on REOs so they can sell them quickly, which means the buyer receives a discount. However, buyers should not that frequent competition on foreclosures can push the price much higher, and the property must be accepted as is, with any damage or flaws included in the deal.
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