What Is Real Estate Owned (REO)?

By Matthew DiLallo – Updated Jul 3, 2025 at 12:47 PM

Key Points

REOs are bank-owned properties not sold at foreclosure auctions and sold at discount.
REOs arise when loan defaults lead to unsuccessful auction sales, necessitating direct sale.
Buyers, particularly investors and first-time homebuyers, target REOs for potential profit.

Real Estate Owned (REO) are properties owned by the lender. They take over ownership after the borrower defaults on their loan and can't sell the property at a foreclosure auction for enough money to satisfy the remaining loan balance. The lender will then try to sell the property directly, often at a significant discount.

Here's a look at REOs, how properties become REOs, REO buyers, and an example of an REO.

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For sale sign with the words Price Reduced added. — Image source: Getty Images.

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Foreclosure

Foreclosure is when the owner of the mortgage has taken the property it secures to repay the debt that’s owed against it.

Lenders dislike holding REOs on their books because it increases their risk. As a result, they're often willing to sell REOs at a discounted price to get them off their books quickly. Although lenders will work to clear all property taxes and other liens against the property to ensure a quick transfer of ownership upon a sale, they usually won't complete any repairs.

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About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

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