Maui Real Estate Owned Property - REOs

I’ve been working with several buyers looking for property in various price ranges over the past several months. Occasionally, we’ve viewed a home that is listed as an REO or Maui Bank Owned Property.

REO represents Real Estate Owned, or Bank Owned Property. An REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. A bank will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the bank will legally repossess the property. As soon as the bank repossesses the property, it is listed on their books as REO – Real Estate Owned – and is categorized as an asset (non-performing).

• As soon as a property goes into a distressed status (the borrower/home owner is behind on mortgage payments) the bank will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a Broker Price Opinion BPO, or order an appraisal. Based on the amount of equity that is determined from the opinion or appraisal, the bank will decide to try for a short sale or to allow it to go through the foreclosure process. If the bank is able to sell the property through a short sale or at a foreclosure auction, then the property will not become a REO property.

• After repossession the property is classified as REO, 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 real estate broker (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.

• Once a property is an REO, the bank or lender will try to get rid of the property. The bank will either sell it directly themselves, or through an established broker. Many larger banks such as Bank of America and Wells Fargo have REO/asset management departments that will field bids and offers, oversee upkeep and handle sales. The majority of REO properties that are on the open market are listed in MLS by the REALTOR that performed the BPO. If you'd like more information on REOs, feel free to contact me.
  

Next, the pros and cons of purchasing an REO.

REO definition courtesy of Wikipedia