Real estate owned or REO is a class of
property owned by a lender, typically a
bank,
after an unsuccessful sale at a
foreclosure auction. This is common because most of the
properties up for sale at these auctions are worth less than the
total amount owed to the bank. The minimum bid in most
foreclosure auctions equals the outstanding loan amount, the
accrued interest and any costs associated with the foreclosure
sale including attorneys' fees.
After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a Realtor. Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property.