What Does REO Occupied Mean?

By: ROS Team

Share the Post:

Have you stumbled upon a real estate listing labeled “REO Occupied”? While intriguing, this term might leave you scratching your head. Fear not, intrepid homebuyer – this article delves into the world of REO properties and what it means when they’re occupied.

REO Occupied Meaning

REO stands for “Real Estate Owned.” These are properties owned by lenders, typically banks, after a foreclosure process. Foreclosure occurs when a homeowner defaults on their mortgage payments, leading the lender to repossess the property.

So, What About “Occupied”?

An REO Occupied property simply means that someone is still living in the house that the bank now owns. This could be:

  • The Previous Owner: They may be going through the emotional (and legal) process of eviction.
  • A Tenant: If the property was rented when the homeowner defaulted, the tenancy agreement often remains in effect until the bank officially terminates it.
  • A Squatter: In rare cases, someone may be illegally occupying the property.


REO Occupied Meaning
Photo Credit: Canva

Reasons for REO Occupied Properties

Legal Proceedings:

In some cases, legal processes may be ongoing, and occupants are granted the right to stay in the property until these proceedings are concluded. This can include legal challenges to the foreclosure process or negotiations between the bank and the occupants.

Tenant Rights:

If the property was an investment property and had tenants at the time of foreclosure, these tenants may have specific rights under local rental laws. The bank may choose to honor existing leases or provide a reasonable amount of time for tenants to find alternative housing.

Bank’s Decision:

Banks may opt to keep occupants in the property temporarily to avoid the costs and responsibilities associated with immediate eviction. This approach can also be seen as a humanitarian gesture to provide occupants with additional time to find suitable housing.

Implications for Buyers

Extended Purchase Process:

Buying an REO occupied property can result in a more extended and complicated purchase process. Buyers may need to wait for legal matters to be resolved or for occupants to vacate before the property can be fully transferred.

Potential Negotiation Opportunities:

The presence of occupants in an REO property can present negotiation opportunities for buyers. Banks may be more motivated to sell, and buyers may be able to negotiate a lower purchase price or favorable terms.

Legal Considerations:

Buyers should be aware of the legal intricacies involved in purchasing REO occupied properties. Consultation with a real estate attorney is advisable to navigate potential challenges and ensure a smooth transaction.

How to Buy an REO Occupied Property?

Purchasing an REO occupied property can be a complex process, but with the right steps and preparation, you can navigate it and potentially secure a great deal. Here’s a roadmap to help you:

Understand the Landscape:

  • Research Local REO Market: Get familiar with REO trends in your area, potential price discounts, and typical eviction time frames.
  • Know Tenant Rights: Learn tenant laws and eviction processes in your city or state. Consulting a lawyer specializing in housing matters is highly recommended.
  • Inspect the Property: If possible, try to negotiate a pre-purchase inspection with the occupant present. Failing that, gather as much information as possible about the property’s condition (photos, past inspection reports, etc.).


Get Ready to Make an Offer:

  • Pre-Approval for Financing: Secure mortgage pre-approval from a lender comfortable financing REO properties with occupants. Be prepared for stricter lending conditions compared to regular purchases.
  • Offer Strategically: Consider offering a lower price considering the eviction challenge and potential repairs. Be patient, as negotiations with banks might take time.
  • Include Vacancy Clause: Try to include a clause in your offer that makes the purchase contingent on the property being vacant at closing.


Navigate the Eviction Process (if necessary):

  • Follow Legal Procedures: Work with your lawyer to initiate the eviction process according to local laws. This often involves providing proper notice to tenants and potentially going to court.
  • Be Clear and Respectful: Communicate proactively with the occupant(s), explaining the situation and exploring potential options like relocation assistance.
  • Prepare for Delays: Evictions can take weeks or even months, so factor this into your timeline and budget.


Closing the Deal:

  • Final Inspection: Once the property is vacant, conduct a final inspection to assess any hidden damages and renegotiate the price if necessary.
  • Finalize Paperwork: Work with your lawyer and real estate agent to finalize closing documents and ensure a smooth handover of the property.

REO Occupied: Final Words

REO Occupied home­s are appealing for experienced buye­rs with enough resources and time­. But, it’s essential to get complete details and possible­ hurdles before starting. Be­ sure to evaluate the­ pros and cons, consult expe­rts, and proceed with caution to make an informed decision that suits your investment goals.