What is an REO?

by on May 31, 2011

in Banked Owned Homes

The term comes from Real Estate Owned by banks.  An REO is simply a bank owned property.  Bank take backs vary from state to state depending on whether or not the region requires a “Judicial” or “Non-Judicial” foreclosure but in California the process occurs in the following ways:

Step 1-Payments are not made.

There are countless reasons why payments are not made but at some point the bank will decide to begin the foreclosure process.  I get asked all the time, “When will the bank begin to foreclose”?, or I hear people say, “The bank starts foreclosure when you’re 60 days behind.”  Actually it is not always the same.   Every bank, and every loan note has different provisions on when they are allowed to begin the foreclosure process but one thing is for sure, if you don’t pay it will eventually occur.

Step 2-Notice of Default

The bank Records a “Notice of Default” on your property with the County Recorders Office.  This Notice is also placed on your front door, and mailed to every address they have on file.  The notice simply states that you have 90 days to bring your loan current.  At this point the clock is ticking.

Step 3-Notice of Trustee Sale

After the 90 period the Notice of Default allows the bank may then decide to Record a “Notice of Trustee Sale”.  The Notice of Trustee sale is also recorded at the County Recorders office and posted on your front door.  This notice states that in 21 days the bank is going to Auction your house at the courthouse to the highest bidder.  Note: They start the bidding at the total loan amount plus any fees or arrearages.  The bank can elect to Record this notice on the 91st day after the Notice of Default is recorded or they may choose to wait, it’s their decision.  Postponements are very common so if you are trying to get a loan modification, complete a short sale, or simply sell the home before the foreclosure it is important to stay in contact with your lender.  They would really like to avoid this processs if you are presenting an alternative solution.    If nothing is done, or can be done, they will move to step 4.

Step 4-Public Auction (Trustee Sale)

As I stated above the Trustee Acution opening bid is always loan amount plus fees and arrearages.  The courthouse steps are full of very savy investors with lots of cash but if that amount is more than the property’s market value no one is going to bid.  Unlike most auctions at the Trustee sale they don’t back down the bid.  In other words if no one bids on the opening amount of $358,857.00 they don’t lower the amount to $300,000 hoping to attract a bidder.  The Bank simply pulls the property off the table and completes the 5th step.

Step 5-REO

The bank found no buyer at auction so now the bank considers this asset an REO….REAL ESTATE OWNED by them.  Now it’s time to sell thier REO.  Banks hire Realtors to help list and sell their REOs.  I currently have 4 Bank Owned listings in Aliso Viejo and Laguna Niguel in just 2011 alone.   Buying a Bank Owned Home is a little different than a regular sale but if you read through this section you may get the insight you need to buy the right home.

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