The term “REO” is frequently used within the industry. But what does it represent and what role does a Mortgage Broker play in the REO process? Mortgage Loan Originator (MLO) Greg Toussieng explains:
What is an REO Property?
An REO is a lender-owned property. This ownership comes into effect when the homeowner defaults on their current mortgage and the house is not sold at auction. Rather than selling the property at auction in the form of a foreclosure or through the extended process of a short sale, a repossession of the property takes place. Generally speaking, an REO does not come into effect until all other methods of sale have been exhausted. At this point, the lender, bank or mortgage broker takes possession of the home or commercial property. The REO is then sold by the new “owner” at an amount that aims to cover the remaining balance of the loan or mortgage.
Once repossessed by the Mortgage Loan Originator, bank or other lending organization, an REO is listed for sale to the general public. The listing price generally entails covering the remaining balance of a loan, which means the property is likely sold at a hefty discount. However, this is not without its costs. A steep discount on a house sounds like a sweet deal! But it is important to understand what you are getting into before jumping into an REO purchase.
As a Mortgage Loan Originator (MLO) and CEO + Lead Broker of Choice Home Mortgage, Greg Toussieng is all too familiar with REOs and how they operate. In his experience, REO’s are often thought of as “fixer-uppers,” as they usually require extensive repairs and maintenance. If you are unfamiliar with such a process, this can become tricky for the average investor. However, if you are a handy individual who is looking to purchase a home for the best deal possible, an REO will likely save you a lot of money! If you are a professional portfolio investor and maintain a network of contractors and other repair professionals, there can be a huge profit potential with REOs.