Real Estate Owned (REO)

Real Estate Owned (REO) refers to properties that are owned by a lender, typically a bank, after an unsuccessful sale at a Foreclosure auction. When a borrower defaults on their mortgage and the property is not sold at auction, it reverts to the lender and becomes part of their Inventory.

Examples:

• A homeowner fails to make mortgage payments, leading to Foreclosure. The property is auctioned but receives no bids, resulting in the bank acquiring the property as REO.
• A commercial property is foreclosed due to the owner’s inability to pay the mortgage. It is not sold at the Foreclosure auction, and the lender adds it to their REO portfolio.

Cases:

• In 2008, during the financial crisis, many homes in the U.S. became REOS as banks repossessed properties after homeowners defaulted, contributing to a Surplus of housing Inventory.
• A lender might hold an REO property for several months or years, deciding to sell it at a later date or convert it into a rental property to generate income.