How Does a Property Become Real Estate Owned?

Headquartered in Burr Ridge, Illinois, Codilis & Associates is a law firm that has been operational since 1977. Together with its affiliate companies, Codilis and Associates provides foreclosure-related services including real estate transactional support for REO closings.

When a property that has been the subject of a foreclosure falls into the ownership of a bank, it becomes an REO (real estate owned) property. This marks the culmination of an elaborate foreclosure process that begins when a borrower defaults on a mortgage. The lender in this case can charge late fees; if the borrower remains in breach, the lender can give 30-day notice and institute a judicial suit for foreclosure and sale.

A foreclosure sale takes the form of a public auction. The lender can make a credit bid for the property up to the full amount of debt plus foreclosure fees. After the auction, lawyers file a motion in court for approval of the sale. Courts usually approve these motions and give an eviction order for the former owner with a 30-day grace period.

Lenders usually sell REO properties either directly or through the help of real estate agents. They can sell at a discount because property sales are not their primary business, thereby giving investors an opportunity to buy good properties at fair prices. However, buyers must exercise caution with REO properties, since they are sold on an “as is” basis. Interested buyers should perform comprehensive home inspections before buying.