REO Process And Prominent Escrow
The REO Process can be a lengthy one for a bank or lender trying to sell off a piece of property that its previous owner defaulted on. It is part of a larger overarching system in which banks or lenders use collateral to ensure repayment or debt payment in the case of a mortgage. Because real estate isn’t a bank’s priority or its primary source of profit, it’s usually eager to get rid of it by selling properties at discounts.The initials stand for Real Estate Owned and originates from the term OREO (other real estate owned), used on the financial statements of institutions that own property though it is not related directly to their actual business. Banks’ primary business is that of making and returning profit on loans; having to manage and resell seized real estate is secondary to, though still often necessary for, managing their business. After all, this real estate is an asset to a lender but it is non-earning asset and therefore somewhat of a burden.Once the borrower begins to miss or make late payments the property in question is considered distressed by the lender. At this point the bank will perform or request an appraisal to determine the equity in a particular home. The house may qualify for a short sale, but if it does not sell or is not allowed to enter a short sale, the lender (or beneficiary) will continue with the foreclosure process.If a property doesn’t sell through foreclosure auction or a short sale, it becomes REO property and belongs to the beneficiary. The REO process now involves the bank attempting to either sell the property itself or hiring an REO assets manager. The lender will release all liens on the property so it can be sold at foreclosure auction, by itself, or through realtors that specialize in REO properties. Many real estate companies look to buy these properties up due to their relatively discounted price.Purchasing these properties can mean a huge savings for investors and since buying an REO property isn’t very different from buying any other property. The REO process is one that banks find necessary but trying and so are happy to move these properties out of their possessions as fast as possible; this is great news for real estate agents and for individual buys looking to buy a home at a big discount from their normal market price.