REO stands for ‘real estate owned.’
Once the mortgage lender (Banks) completes a foreclosure action, the properties not sold at foreclosure are taken back by the lender and categorized as non-performing assets. These properties are listed on their books as “bank owned’ and classified as a “non-performing asset.”
By the time foreclosure is concluded, the lender would have exhausted all means to work with the
debtor to bring the loan current. Foreclosure does not happen overnight and is a long winded process.
Initially the lender will attempt to collect the debt through notices, personal visits to the property and
telephone calls; however, if all of these attempts fail to result in a curing of the default, the lender’s
options then become limited to liquidation.
A foreclosure is conducted as a last resort because it generally results in a loss to all parties involved.
Foreclosure is the process in which the property securing the mortgage debt is sold to pay off the balance owed to the lender. The process is governed by state law and varies from state to state, but there are similarities among the different state statutes.
Once the REO is acquired, the timely and prudent disposition of the asset may minimize the loss;
however, the opportunity to prevent the loss is lost. The lender will then move forward with trying
to sell the property in an attempt to recover losses on the mortgage note. This is referred to as
“liquidating the asset.” The lender will begin the disposition process and will either handle the asset
through their in-house REO department or by contracting an Asset Management Company who will
manage the disposition for them.