REO is the property owned by a bank who has foreclosed on a home
owner.
A homeowner gets behind on their mortgage payments for whatever reason
and the lender notifies them in writing stating that the lender plans to
foreclose on the property. At closing, borrowers sign a Deed of
Trust that gives the lender the right to take back the property if they
do not make the mortgage payment timely.
North Carolina uses a non-judicial system and only has to notify the
county clerk where the property is located to start the foreclosure
proceedings which results with the property being sold at the court
house steps. The foreclosing bank acting through their Trustee sets the
Opening Bid for the auction at the court house steps which in most cases
is the amount they are owed plus any back interest, borrower fees, and
attorney fees. The bidding is open and anyone can bid on the property
that is present. The Trustee typically sets a starting bid and if no
one else makes a bid then or during the 10 day upset period, the bank
will own the property.
The banks do not like being in the property ownership
business. They are in the property lending business! Owning property
also limits the amount of money the bank can lend. This is their
motivation to dispose of REO properties as soon as possible.
Typically, the bank begins this process by having an appraisal and a
Real Estate agent perform a Broker Price Opinion (BPO). The lender then
sets the list price for the property usually within a few thousand
dollars of the auction price they paid. It will be listed in MLS.
The bank should be aggressive on the listing price and will lower it
approximately $5,000 every 45+/- days until it sells. Again, they are
eager to sell this REO and get it out of their inventory.