| REO, or real estate owned, is a property which is | | | | liability to the bank. The bank shall then try to sell the |
| classified as one owned by a bank or lender. Such | | | | property, after removing all present liabilities on the |
| kinds of property are a result of default payments by | | | | property, by ay of unpaid taxes or maintenance |
| the mortgagee and subsequent foreclosure auction by | | | | charges. Once the property is clear of all the unpaid |
| the bank. Once a mortgagee starts defaulting and is | | | | dues, it shall be free to be sold in the open market. |
| unable to pay the monthly installments; the bank shall | | | | Some banks have asset management departments |
| deem the property fit to be put up for foreclosure | | | | which take care of such assets, which have been |
| through an auction. The base price is fixed as the | | | | confiscated due unpaid mortgage payments. |
| amount that is to be repaid by the borrower. In case | | | | This department shall be responsible for disposing |
| no higher bids are available, the bank shall legally be | | | | these assets. In some cases, where banks do not |
| deemed to be owner of the property. This is when the | | | | have such departments, they either use the services |
| property gets classified as REO. | | | | of a real estate broker or use classified |
| As soon as a property goes into a distressed status; | | | | advertisements in newspapers or internet sites to sell |
| where-in the borrower starts missing the mortgage | | | | off such properties. The methodology adopted could |
| payments, the bank shall determine the exact equity | | | | either be open auctions or sealed bids, depending upon |
| that the property has in the market. A method to | | | | the policies and regulations of the bank. Most listings |
| determine the equity is to obtain an opinion from a | | | | that appear on internet sites are normally put up by |
| broker or an appraisal company. Once this report is | | | | brokers who act on behalf of banks or lenders. |
| ready, the bank shall fix the minimum price that it ought | | | | Real estate owned properties are treated as a liability |
| to get, and then decide on future action. The action | | | | because the banks do not want to spend their time |
| may be foreclosure auctions or in case this does not | | | | and money to manage assets, as this certainly is not |
| yield required results, a short sale option is also | | | | their core operation. They would rather sell these |
| explored. | | | | assets and make profits, as the mortgage |
| Foreclosures are sometimes a starting step towards | | | | departments are specifically designed to do such kind |
| REO property. While foreclosures tend to bring a | | | | of work and have no or very less experience in |
| minimum amount of profit to the lender by way of | | | | managing real estate assets. |
| auction sale, real estate owned property becomes a | | | | |