Over the past several years, this question has frequently been heard in various conversations. A simple explanation is the term “REO” is use to describe properties owned by the lenders. Real Estate Owned properties are normally acquired by the lenders through foreclosure.
In obtaining a loan on a property, the borrower (homeowner or buyer) is normally required to execute a mortgage or pledge against property the borrower owns. This property once pledged is additional collateral or security for the promissory note.
A promissory note is an avenue by which a borrower obtains funds, for either buying a home or home improvements or payment of debts. The borrower by signing the promissory note promises to pay back the funds being loaned. Execution of the mortgage provides additional security for the lender. Should the borrower fail to repay the loan, per the promissory note, the lender or mortgage holder has two options for recovering the loan funds. First, seek a judgement against the owner for failing meet the obligations of the promissory note. Second, initial foreclosure action against the property used as collateral.
Once the foreclosure action is taken, a legal procedure called Lis Pendis (action pending) is filed against the property. Filing of a Lis Pendis has two objectives: First, provide constructive notice that legal action is being taken which could affect the property; Second, ownership of the property cannot be transferred.
Upon a foreclosure judgement being issued, the Court will require the County Sheriff to sell the property at public auction. If the mortgage holder has the winning bid at the auction, a Certificate of Title will be issued. The Certificate of Title transfers ownership of the property to the mortgage holder. Once the Certificate of Title is recorded, with the Clerk of the Court, the mortgage holder becomes owner of the property. At this point the term Real Estate Owned becomes the official designation of the mortgage holder’s property.
Additional details foreclosure actions and procedures can be obtained by contacting Value Homes Real Estate School, LLC. Information regarding foreclosure is provided in both the Sales Associates and Broker pre-license courses. All courses offered by Value Homes Real Estate School, LLC are listed in the school website at www.valuehomesrealestateschool.com.