What Is The REO Process?

REO is the acronym for real estate owned and thus REO process stands for real estate owned process. Real estate owned is a term that is used to refer to a property that has been repossessed by the lender, bank, government agency or mortgage loan insurer.


When a homeowner has a mortgage running, he or she may default once or more in paying the installments on time. If there comes a time when the repayments have stalled for several times and the homeowner is unable to continue repaying the mortgage, the lending company looks at ways to either get their money back or they take possession of the property. If the homeowner is unable to get a refinance or offers no viable solution to the present problem of a defaulting mortgage, the lender has all the rights to foreclosure.


Some homeowners try to opt for short sales, which is mostly the case when loan to mortgage values are very high. In many cases, the market value of a property dips below the amount of money the homeowner owes to the lender. In such scenarios, foreclosures may not always work in favor of the lender because they would be losing a substantial amount of money which was supposedly due as mortgage repayments. Short sale happens to be the only viable solution in these circumstances.


Whether a property is subjected to foreclosure or short sale, the homeowner has to give up possession and the house becomes a real estate owned property. This is the beginning of the REO process. The REO process then takes either the route of foreclosures or short sales. With foreclosures, the REO process may involve open auctions, private auctions, MLS listing or some real estate asset manager or broker can be hired to sell off the property to a suitable buyer who agrees to the price set out by the lender. In case the property doesn’t get sold in any of the auctions, through any of the listings or through direct sales, the property becomes a nonperforming asset for the lender and the REO process is in effect in full swing.


The property may be sold at a later date using any of the available means of marketing or approach and it is then that the REO process ends. In a nutshell, the REO process is the entire phase beginning with a property being categorized as distressed and ending with the reselling of the property to a buyer.

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