REO Properties: How to Find and Buy Bank-Owned Homes

Real-estate owned (REO) properties can be affordable options for prospective buyers. An experienced real estate agent can help guide you through the process.
Barbara Marquand
By Barbara Marquand 
Updated
Edited by Beth Buczynski

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People who plan to move aren't the only ones who put their homes up for sale. Lenders also list houses on the market.

Bank-owned homes — also known as real-estate owned (REO) properties — may be worth considering as a first-time or move-up buyer. Lenders are motivated to unload these homes and are inclined to offer fair prices.

Here's what to know about finding and buying a house that's owned by a bank.

What is an REO property?

Bank-owned or REO properties are foreclosed homes that were repossessed by lenders. Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders, also have REO properties. The term "real-estate owned" comes from an accounting term — "other real estate owned" — used on bank financial statements. Nonbank mortgage companies sell all the mortgages they originate and don't own REO properties.

Here's how a home becomes an REO property:

  • After a borrower fails to make mortgage payments for a certain period, a lender can begin the foreclosure process.

  • The lender issues a notice of default, then later, if the borrower still hasn't made payment, a notice of sale.

  • Unless the borrower comes up with the money, the home is offered for sale at a public auction.

  • If the house doesn't sell at auction, the bank takes possession of the property and sells it to traditional home buyers or real estate investors.

A home can also become bank-owned if the lender accepts a deed in lieu of foreclosure.

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