Real Estate Owned (REO) Properties
REOs / Foreclosures
Real estate owned (REO) properties are simply real estate owned by banks, corporations, or small private investors. In order for a property to become an REO, it must go through the process of foreclosure.
The foreclosure is a specific legal process in which the lender attempts to recoup the balance of a loan from a borrower who has stopped making payments on the mortgage debt owed to the lender by forcing the sale of the property used as the collateral for that loan. To further explain the foreclosure process, as applied to residential mortgage loans, the bank or other secured creditors sell or repossess the property after the owner has failed to comply with the agreement (mortgage or Deed of Trust) between the lender and borrower.
The violation of the mortgage becomes a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs; it is typically said, "the lender has foreclosed its mortgage or lien."
If the promissory note was made with a recourse clause and the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee (lender) can file a claim for a deficiency judgment. In many states in the United States, items included calculating the amount of a deficiency judgment are the loan principal, accrued interest, and attorney fees less the amount the lender bid at a foreclosure sale.
After a lender has foreclosed on such a home --if there was mortgage insurance-- the mortgage insurance will then compensate the lender for losses incurred, and the title on the secured property transfers to Fannie Mae, Freddie Mac, or HUD Homes.
Obviously, the federal government, Fannie Mae, and Freddie Mac are not in the business of owning homes, nor can they sell REO homes themselves. So, these properties must be sold on the open-market to new homeowners through private real estate brokers such as StoneGate Realty.
As you will see, each sale has a process that must be followed when showing the property or submitting an offer. The information listed provides insight on each process. Click on the links below for information on the respective programs.