An REO (Real Estate Owned) is a property that is owned by a bank or other lending institution. Throughout the foreclosure process, the lender's goal is the recovery of the principle loan balance, accrued interest, late fees, penalties, taxes paid on behalf of the property owner, court costs and attorneys' fees. Lenders explore all the options with regards to recovering these losses, and they will often buy the property at the foreclosure auction and resell it in an effort to recover their losses.
The commonly held notion that a bank or other lending institution must sell a repossessed property for the same amount it cost them to gain possession-and therefore make no profit-is false. If the foreclosing lender is the successful bidder at the auction, it will take possession of the property for the very first time. When this happens, all the rules change. The lender is now the legal property owner and can do anything it wants with the property: rent it, keep it, or sell it. The lender can now sell the property for any amount it desires.
Many new investors prefer to buy properties directly from the bank. Lenders usually make sure the is clear for any buyer, so it's less risky for the beginner. Plus, the process is often simpler than buying other types of foreclosures, and BankHomesDirect offers their members free access to nationwide REO listings.
