Other Real Estate Owned (OREO)

What Is Other Real Estate Owned (OREO)?

Other Real Estate Owned (OREO) is a bank accounting term that refers to real estate property assets that a bank holds, but that are not part of its business. Oftentimes, these assets are acquired due to foreclosure proceedings. A large quantity of OREO assets on a bank balance sheet may raise concerns about the overall health of the institution.

Understanding Other Real Estate Owned

When a real estate property is deemed "real estate owned," it means that the property is now owned by a lender because the borrower defaulted on their mortgage, and the property did not sell at foreclosure auction. Banks are not typically in the business of owning real estate, and end up in that position when something goes wrong with their borrower (usually foreclosure). A former premise of a bank that has not yet sold would be another example of a bank's OREO assets, since the property is no longer income-producing. Since the real estate is not being held as an income-producing asset, it is treated differently in the bank's accounting records and reporting. The Office of the Comptroller of the Currency (OCC) regulates banks' holdings of OREO assets.

Special Considerations

Most OREO assets are available for sale by the banks who own them. Many states have laws that regulate the acquisition and maintenance of OREO properties. Banks are generally required to maintain, keep insurance on, pay taxes on, and actively market them.

Increasing OREO on a bank’s balance sheet may indicate that the institution’s credit is deteriorating while its non-earning assets are growing. Since real estate is not a liquid asset, high levels of OREO can harm a bank's liquidity.