When a home is foreclosed by a bank or lender, it is sent to a foreclosure auction. If the home does not sell at the foreclosure auction, the ownership of the property reverts to the lender and the home becomes a REO property, which is short for Real Estate Owned. REO properties are also known as bank-owned properties.
Once a bank owns real estate, they will usually list the property for sale via a real estate broker on the open market. Buyers who purchase REO properties are often able to purchase them for below-market values, but with those below-market prices may come deferred maintenance and neglect that become the responsibility of the buyer.