REO Houses – What is it, definition and concept

REO houses are properties that have been repossessed by the bank or the respective creditor of the mortgage debt. Thus, these properties are put up for sale to recover the financing granted.

That is, REO homes are homes taken over by the bank or lender in question. This, after the purchaser of the property stopped paying the mortgage loan received.

At this point, we must explain that, when a mortgage is granted, the guarantee or endorsement of this loan is usually the property from which the purchase is being financed.

REO homes are expected to be auctioned off or offered at low prices. This, given that the purchase and sale of real estate is not the bank’s business, which requires an investment in maintenance, among other expenses.

It is for the above that, in principle, repossessing the home is perhaps the bank’s last option. Beforehand, an attempt will be made to recover at least part of the debt or to reach an agreement with the borrower.

Characteristics of REO houses

Among the characteristics of REO houses we can highlight:

  • REO comes from the acronym of the name in English (“real estate owned”).
  • These properties may require repairs, so the advice of an experienced real estate agent is usually suggested to the potential buyer.
  • REO homes are not necessarily put up for sale right away. The bank may decide to wait for the property to appreciate. However, as we have mentioned before, the financial institution would still have to seek the sale of the property since real estate is not its main business, but financial intermediation.
  • REO homes can be purchased through auction, although this is not always the case. Sometimes they can be acquired through a regular buying and selling process. The bank may offer the property for sale through a real estate agent, for example.
  • Although REO homes are often foreclosed on when the lender wants to quickly recoup some of the financing, there is no average expected downgrade percentage for the buyer. It depends on many factors, including the economic situation.
  • Another point to keep in mind is that the creditor is not always the bank. This can be the government (federal or state), for example.
See also  Christmas 2020 special: the last challenge of the year

REO Homes and Foreclosure

The process by which the home has been repossessed by the creditor is called foreclosure. This is the procedure by which the lender can claim and collect your debt by seizing the guarantee, which is the home, and then selling it. This, always in accordance with the legal framework contemplated in the respective country.

It may be, for example, that the current norm establishes that the bank can only initiate the execution when the payments in arrears exceed 6 months. This, from the claim of the financial entity of the total amount of the loan.

Leave a Comment