Real-Estate Owned

If a bank or a credit union makes a loan and a borrower fails to meet the agreed mortgage payments on that loan, the property is put into a foreclosure auction. If the property does not meet the bank or credit unions base offer price at auction the property becomes the possession of the bank or credit union. This property then becomes Real-Estate Owned or REO on a bank’s balance sheet. The lender in this case can be a bank, credit union, government loan insurer or agency. The occurrence of this unsuccessful sale is common because the property put up for auction tends to fetch less than the entire amount owed to the lender. When the lender gains repossession of such property, it is classified as REO, and is also labeled as a non-performing asset. The bank or credit union can now proceed with handling the property at its discretion.