What does REO mean?

After an unsuccessful foreclosure sale, a lender will ascend to title and obtain the deed to the property, which makes the lender the new owner of the property. The property becomes known as real estate owned (REO). The financial obligation of the borrower may or may not be cancelled.

As property owners, the lenders become responsible for taxes, insurance, and the sale of the property, among other things. To deal with the many concerns of owning property, some lenders have specific departments that handle REOs.

If the property is occupied, the lender will take the proper steps to have it vacated. With some exceptions, tenants of foreclosed properties are protected from eviction through the Protecting Tenants at Foreclosure Act of 2009.

If there are tax liens on the property and it is in jeopardy of going to a tax sale, lenders will pay the back taxes. If the property is not in jeopardy, they might allow the delinquent taxes to accrue and then pay taxes with the proceeds of the sale rather than invest funds out of pocket.

To protect lenders from damage to the property and liability, REOs are immediately added to the lender’s “blanket” insurance policy. If appropriate, coverage might be extended to include protection from floods, earthquakes, and other natural disasters. Lenders should check the property regularly and consider changing the locks, turning off utilities, and winterizing the property if necessary to further protect its value. They should also investigate whether the property is or has been cited for any zoning or other code or law violations.

While some properties are sold “as is,” lenders might find it necessary after a proper analysis to renovate the property to make it more conducive to a profitable sale. Because distressed properties tend to already have reduced values, selling badly damaged or vandalized properties will likely set the lender up for a loss greater than the cost of renovation.

If an environmental concern is suspected, lenders will order a Phase I environmental report before taking title. This is most often a concern with commercial properties. If an environmental problem is disclosed and its remediation cost significantly exceeds the potential resale value of the property after foreclosure, the lender may elect not to ascend to title, thereby avoiding the responsibility for remediating the property in order to sell it.

If you have any further questions on REO, foreclosures or short sale properties please ask!

Warmest regards,

JJ Devore

Information obtained courtesy of Kaplan Professional Schools

About the author

Green Acres Real Estate

Real Estate Company

Green Acres Real Estate is a locally owned and operated Real Estate Agency in Clinton, IL. We serve Dewitt, Piatt, McLean, Macon and Logan counties. Feel free to call us with all your real estate questions 217-935-0000

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