Other Real Estate Owned (OREO)

What Is Other Real Estate Owned (OREO)?

Other Real Estate Owned (OREO) is a bank accounting term that alludes to real estate property assets that a bank holds, however that are not part of its business. Periodically, these assets are acquired due to foreclosure procedures. A large quantity of OREO assets on a bank balance sheet might raise worries about the overall strength of the institution.

Understanding Other Real Estate Owned

At the point when a real estate property is considered "real estate owned," it means that the property is presently owned by a lender on the grounds that the borrower defaulted on their mortgage, and the property didn't sell at foreclosure auction. Banks are not commonly in that frame of mind of claiming real estate, and end up in that position when something turns out badly with their borrower (typically foreclosure). A former reason of a bank that has not yet sold would be one more illustration of a bank's OREO assets, since the property is no longer pay creating. Since the real estate isn't being held as a pay delivering asset, it is dealt with contrastingly in the bank's accounting records and reporting. The Office of the Comptroller of the Currency (OCC) directs banks' holdings of OREO assets.

Special Considerations

Most OREO assets are ready to move by the banks who own them. Many states have laws that direct the acquisition and maintenance of OREO properties. Banks are generally required to keep up with, keep insurance on, pay taxes on, and actively market them.

Expanding OREO on a bank's balance sheet might show that the institution's credit is weakening while its non-procuring assets are developing. Since real estate is certainly not a liquid asset, high levels of OREO can hurt a bank's liquidity.