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[[Image:REO example.jpg|250px|right|thumb|REO sale property in [[San Diego, California]]]]
'''Real estate owned''' or '''REO''' is a term used in the United States to describe a class of [[property]] owned by a [[lender]]—typically a [[bank]], government agency, or government loan insurer—after an unsuccessful sale at a [[foreclosure]] auction.<ref>
William Roark (2006), ''Concise Encyclopedia of Real Estate Business Terms''
{{ISBN|0-7890-2341-5}}</ref> A foreclosing [[beneficiary]] will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property. This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high [[loan-to-value]] mortgage following a [[real estate bubble]]. As soon as the beneficiary repossesses the property it is listed on their books as REO and categorized as an asset. (See ''[[non-performing asset]]'').
==Origin==
The term ''REO'' originates from the term ''other real estate owned'' (OREO), which is used on financial statements to classify real estate property owned by a financial institution but which is not directly related to its business. These financial institutions are often the lender. Lenders are primarily in the business of making loans with the intent that nearly all of those loans will be repaid in full with interest. Seizing, managing and reselling real property collateral to recover unpaid loan balances is secondary to lenders' primary line of business. Property management companies, for whom real estate management ''is'' their primary business, use the term OREO.
In balance sheet terms, OREO assets are considered non-earning assets for purposes of regulatory accounting.<ref name="Investopedia">{{cite web|author=<!--Staff writer(s); no by-line.-->|website=Investopedia|title=Real Estate Owned - REO|access-date=4 June 2016|url=http://www.investopedia.com/terms/r/realestateowned.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186&lgl=myfinance-layout-no-ads}}</ref><ref>{{cite web| url= http://connectedinvestors.com/blog/find-bank-owned-reo-properties/| title= REO Properties }} Saturday, 6 January 2018 </ref> In the context of [[national bank]]s in the U.S., the term OREO is legally defined by the [[Office of the Comptroller of the Currency]] in regulations promulgated pursuant to {{USC|12|29}}, specifically in {{USCFR|12|34}} and {{USCFR|12|160|30}}.<ref name="comptrollershandbook">{{cite book |author=<!--Staff writer(s); no by-line.--> |title=Comptroller's Handbook: A-OREO |url=https://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/a-oreo.pdf |location= |publisher=Office of the Comptroller of the Currency |page=2|date=September 2013}}</ref>
==Process==
As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the beneficiary will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a [[Broker's Price Opinion]] (BPO) or order an [[Real estate appraisal|appraisal]]. Based on the amount of equity that is determined from the BPO, the bank will decide whether to allow a [[Short sale (real estate)|short sale]] (if requested by the homeowner). If no short sale is requested by the home owner, the beneficiary will continue the foreclosure process. If the beneficiary is unable to sell the property through a short sale or at a foreclosure auction it will now become an REO property.
After a repossession from which the property becomes classified as REO, the beneficiary will go through the process of trying to sell the property on its own or obtain the service of an REO Asset Manager. The beneficiary will remove the liens and other debts on the home and try to resell it to the public, either through future auctions, direct marketing through a real estate broker, or by itself. The asset manager may also try to contact REO realtors that specialize in certain [[ZIP code]]s to help sell this bank owned property. [[Real estate]] [[investor]]s will often purchase these properties because of discounts offered to compensate for the condition of the property.
Many larger banks and government institutions have REO/[[asset management]] departments that field bids and offers, oversee up keep, and handle sales. Some REO properties on the open market will be listed in [[Multiple Listing Service|MLS]] by the [[broker]] who performed the BPO. {{Citation needed|date=January 2011}}
== Property preservation ==
Bank REO properties are generally in poor condition and need repairs and maintenance, both to satisfy property upkeep laws and to preserve and prepare the property for sale. Maintenance is generally the responsibility of the [[mortgage servicer]]<ref name="fannie" /><ref>[http://www.mbaa.org/ServicerContacts.htm Property Preservation Servicer Contacts], Mortgage Bankers Association</ref> and is often in turn provided by a specialized '''property preservation company'''. These ''property preservation services'' include: securing a property (changing locks, [[boarding up]]), debris removal, property maintenance (winterizing, cutting grass, repairing or tarping roof leaks), and [[Architectural conservation#Current treatments|rehabilitation]].<ref name="fannie" >"[https://www.efanniemae.com/sf/guides/ssg/relatedservicinginfo/pdf/ppmatrix.pdf Property Maintenance & Management: Property Preservation Matrix]", 2010, [[Fannie Mae]]</ref><ref>"[http://www.allbusiness.com/banking-finance/banking-lending-credit/10204456-1.html Cleaning house]" by Kristen Hampshire, ''Inside Business,'' May 1, 2008</ref>
In addition to preventing damage to the property, securing a property is used to prevent or discourage re-entry by former occupants or by [[squatter]]s, which can both damage the property and require legal proceedings to remove, further complicating a sale. [[Swimming pool]]s must also be secured to prevent deaths or injuries from [[drowning]] and falls.
Lenders may purchase "real estate owned" insurance to protect against loss and liability relating to lender-owned properties. REO insurance differs from "forced placed" insurance (also "lender placed" insurance), which a lender purchases for borrower-owned property when the borrower does not insure the property.<ref>''[https://www.scc.virginia.gov/boi/pubs/fp_ins.pdf Forced Placed insurance]'', Virginia State Corporation Commission</ref>
==Bulk real estate owned==
Bulk REO or bulk real estate owned, from a [[real estate investor]]’s point of view, is like investing on [[wholesale real estate]] properties. On the other hand, [[bank]]s or lenders sell or open their assets in group for [[auction]] at a very low price compared to their [[market value]]. <ref name="Whitney2003">{{cite book|author-first=Russ|author-last=Whitney|title=Millionaire Real Estate Mentor|publisher=Dearborn Trade Publishing|publication-date=2003}}</ref>{{rp|51}}<ref name="Kollen2008">{{cite book|author-first=Melissa|author-last=Kollen-Rice|title=Buying Real Estate Foreclosures|edition=3rd|publisher=McGraw-Hill|publication-date=2008}}</ref>{{rp|107}}
==References==
{{reflist|30em}}
{{Real estate}}
{{DEFAULTSORT:Real Estate Owned}}
[[Category:Real estate terminology]]
'''Real estate owned''' or '''REO''' is a term used in the United States to describe a class of [[property]] owned by a [[lender]]—typically a [[bank]], government agency, or government loan insurer—after an unsuccessful sale at a [[foreclosure]] auction.<ref>
William Roark (2006), ''Concise Encyclopedia of Real Estate Business Terms''
{{ISBN|0-7890-2341-5}}</ref> A foreclosing [[beneficiary]] will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property. This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high [[loan-to-value]] mortgage following a [[real estate bubble]]. As soon as the beneficiary repossesses the property it is listed on their books as REO and categorized as an asset. (See ''[[non-performing asset]]'').
==Origin==
The term ''REO'' originates from the term ''other real estate owned'' (OREO), which is used on financial statements to classify real estate property owned by a financial institution but which is not directly related to its business. These financial institutions are often the lender. Lenders are primarily in the business of making loans with the intent that nearly all of those loans will be repaid in full with interest. Seizing, managing and reselling real property collateral to recover unpaid loan balances is secondary to lenders' primary line of business. Property management companies, for whom real estate management ''is'' their primary business, use the term OREO.
In balance sheet terms, OREO assets are considered non-earning assets for purposes of regulatory accounting.<ref name="Investopedia">{{cite web|author=<!--Staff writer(s); no by-line.-->|website=Investopedia|title=Real Estate Owned - REO|access-date=4 June 2016|url=http://www.investopedia.com/terms/r/realestateowned.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186&lgl=myfinance-layout-no-ads}}</ref><ref>{{cite web| url= http://connectedinvestors.com/blog/find-bank-owned-reo-properties/| title= REO Properties }} Saturday, 6 January 2018 </ref> In the context of [[national bank]]s in the U.S., the term OREO is legally defined by the [[Office of the Comptroller of the Currency]] in regulations promulgated pursuant to {{USC|12|29}}, specifically in {{USCFR|12|34}} and {{USCFR|12|160|30}}.<ref name="comptrollershandbook">{{cite book |author=<!--Staff writer(s); no by-line.--> |title=Comptroller's Handbook: A-OREO |url=https://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/a-oreo.pdf |location= |publisher=Office of the Comptroller of the Currency |page=2|date=September 2013}}</ref>
==Process==
As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the beneficiary will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a [[Broker's Price Opinion]] (BPO) or order an [[Real estate appraisal|appraisal]]. Based on the amount of equity that is determined from the BPO, the bank will decide whether to allow a [[Short sale (real estate)|short sale]] (if requested by the homeowner). If no short sale is requested by the home owner, the beneficiary will continue the foreclosure process. If the beneficiary is unable to sell the property through a short sale or at a foreclosure auction it will now become an REO property.
After a repossession from which the property becomes classified as REO, the beneficiary will go through the process of trying to sell the property on its own or obtain the service of an REO Asset Manager. The beneficiary will remove the liens and other debts on the home and try to resell it to the public, either through future auctions, direct marketing through a real estate broker, or by itself. The asset manager may also try to contact REO realtors that specialize in certain [[ZIP code]]s to help sell this bank owned property. [[Real estate]] [[investor]]s will often purchase these properties because of discounts offered to compensate for the condition of the property.
Many larger banks and government institutions have REO/[[asset management]] departments that field bids and offers, oversee up keep, and handle sales. Some REO properties on the open market will be listed in [[Multiple Listing Service|MLS]] by the [[broker]] who performed the BPO. {{Citation needed|date=January 2011}}
== Property preservation ==
Bank REO properties are generally in poor condition and need repairs and maintenance, both to satisfy property upkeep laws and to preserve and prepare the property for sale. Maintenance is generally the responsibility of the [[mortgage servicer]]<ref name="fannie" /><ref>[http://www.mbaa.org/ServicerContacts.htm Property Preservation Servicer Contacts], Mortgage Bankers Association</ref> and is often in turn provided by a specialized '''property preservation company'''. These ''property preservation services'' include: securing a property (changing locks, [[boarding up]]), debris removal, property maintenance (winterizing, cutting grass, repairing or tarping roof leaks), and [[Architectural conservation#Current treatments|rehabilitation]].<ref name="fannie" >"[https://www.efanniemae.com/sf/guides/ssg/relatedservicinginfo/pdf/ppmatrix.pdf Property Maintenance & Management: Property Preservation Matrix]", 2010, [[Fannie Mae]]</ref><ref>"[http://www.allbusiness.com/banking-finance/banking-lending-credit/10204456-1.html Cleaning house]" by Kristen Hampshire, ''Inside Business,'' May 1, 2008</ref>
In addition to preventing damage to the property, securing a property is used to prevent or discourage re-entry by former occupants or by [[squatter]]s, which can both damage the property and require legal proceedings to remove, further complicating a sale. [[Swimming pool]]s must also be secured to prevent deaths or injuries from [[drowning]] and falls.
Lenders may purchase "real estate owned" insurance to protect against loss and liability relating to lender-owned properties. REO insurance differs from "forced placed" insurance (also "lender placed" insurance), which a lender purchases for borrower-owned property when the borrower does not insure the property.<ref>''[https://www.scc.virginia.gov/boi/pubs/fp_ins.pdf Forced Placed insurance]'', Virginia State Corporation Commission</ref>
==Bulk real estate owned==
Bulk REO or bulk real estate owned, from a [[real estate investor]]’s point of view, is like investing on [[wholesale real estate]] properties. On the other hand, [[bank]]s or lenders sell or open their assets in group for [[auction]] at a very low price compared to their [[market value]]. <ref name="Whitney2003">{{cite book|author-first=Russ|author-last=Whitney|title=Millionaire Real Estate Mentor|publisher=Dearborn Trade Publishing|publication-date=2003}}</ref>{{rp|51}}<ref name="Kollen2008">{{cite book|author-first=Melissa|author-last=Kollen-Rice|title=Buying Real Estate Foreclosures|edition=3rd|publisher=McGraw-Hill|publication-date=2008}}</ref>{{rp|107}}
==References==
{{reflist|30em}}
{{Real estate}}
{{DEFAULTSORT:Real Estate Owned}}
[[Category:Real estate terminology]]
