What defines REO properties?

REO properties, or Real Estate Owned properties, are specifically defined as those that have been acquired by lenders, typically banks or mortgage companies, following a foreclosure process. When a homeowner defaults on their mortgage payments, the lender will eventually go through foreclosure to take possession of the property. After the foreclosure sale, if the property does not sell to a third party, it reverts back to the lender, thereby becoming an REO property.

This distinction is crucial because it indicates that the property is now part of the lender's real estate portfolio. Lenders seek to sell these properties to recover the losses incurred from the initial mortgage loan. The condition and marketability of REO properties can vary significantly, often requiring repairs or renovations that the lender needs to address before listing the property for sale.

Understanding REO properties is important for real estate professionals because they often represent opportunities for investors and homebuyers who are looking for discounted properties. This is significantly different from properties under construction, properties owned by real estate agents, or those listed for sale by owners, which do not involve the lender's ownership following a foreclosure.