The term REO means "real estate owned" by the lender and indicates the house or income producing property has been repossessed by the lender and already completed the legal foreclosure process. In most cases, the lender is the bank, which is why you hear the term "bank owned properties" or "Bank REO's".

When buying in the post foreclosure phase, the bank or the lender is the owner of the property by either through a pubic auction or an owner agreement during before foreclosure proceedings.

One way to avoid foreclosure is thru Short Sale wherein the property is offered to a bank or a lender who is willing to buy the property at the agreed amount.

For a property to be sold quickly, it is priced lower than the current market value by the bank or a lender.

Foreclosed properties are bought on "As Is" condition and the new owner shoulder all the responsibilities that goes with the property.

Since what is owed to the bank it is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

It always pay to have good contacts especially in the real estate world. No matter how good you are, you need help from professionals to help you go thru the process.

Same rule applies for any real estate buyer, may it be for a residence or an investment.