Oregon 30-Hour Real Estate Law Practice Test

Which term refers to a situation where a property is owned by a bank after a foreclosure?

1. Foreclosure

2. REO

3. Short Sale

4. Lis Pendens

The correct answer is: REO

The term that refers to a situation where a property is owned by a bank after a foreclosure is "REO," which stands for Real Estate Owned. This designation indicates that the financial institution has taken possession of the property after the foreclosure process has been completed. During foreclosure, a borrower defaults on their mortgage, and the bank repossesses the home to recover the outstanding debt. If the property fails to sell at foreclosure auction, it becomes part of the bank's real estate inventory, hence the term REO. The other terms are distinct and do not represent the same situation. For instance, foreclosure refers to the process by which a lender attempts to recover the amount owed on a defaulted loan by taking control of the property. A short sale is where the homeowner sells the property for less than what is owed on the mortgage with the lender’s approval, often to avoid foreclosure. Lis pendens is a legal term indicating that a lawsuit has been filed concerning a property, which can complicate its sale but does not imply ownership by a bank. Understanding REO and its implications is crucial for real estate professionals, especially when navigating the aftermath of a foreclosure.