What’s in a Name?

 What We Call a Foreclosure is Actually an REO

 

A term you should be familiar with is REO.  This is the real estate and banking industry term for a property that has gone through the foreclosure process and is now owned by a bank or similar financial institution.  REO is short for “Real Estate Owned”.  It’s an accounting term that describes the properties banks are holding on their balance sheets that they have taken ownership of after a foreclosure process.

Foreclosure is the process a lender goes through to sell off or "repossess” a property when the borrower has stopped paying on it.  In Colorado there is a very specific set of legal steps a lender must go through during the foreclosure process and once they have worked through those steps, the property is auctioned off to the highest bidder.

Since most homes involved in the foreclosure process are worth less than is owed in our current real estate market here in Pagosa Springs, the lender itself usually will be the highest bidder at the auction, bidding essentially what they are owed and becoming the new owner of the property.  At that point, the property now belongs to the lender and will show up on the lender’s books categorized as “other real estate owned”, indicating it is not part of the lender’s operational property.  Folks looking to buy “foreclosures” are actually looking to buy REOs.

REOs can represent excellent opportunities to purchase a home at a very good price.  However, REOs represent a number of challenges during the purchase process, which if not handled properly, can cause frustration at best and loss of earnest deposits or other costly surprises.  If you are looking to purchase an REO, you would be wise to work with a broker who understands the process and knows how to advise you in working through it.  Lisa and I have closed numerous REO deals in the last few years and are well versed in the ins and outs of the process.  An attorney can also be an important advisor and for anywhere from few hundred to a few thousand dollars the protection a good attorney might offer can be money well spent.

 

 - Joe LaMastra, January 10, 2012