Finding an investment probably seems like a complicated, time-consuming ordeal, but once you get used to the process, you will never pay too much.
When a borrower defaults on his mortgage, there is a foreclosure period which often involves either a real estate short sale or a public auction. If the short sale or public auction are unsuccessful, the process ends with the lender, taking ownership of the property.
To make a real-estate owned property attractive to buyers, the lender attempts to remove some of the liens and other expenses accumulated on the property's title. REO properties can be attractive to real estate investors because banks may sell them at a discount to their market value since owning real estate is not their primary line of business.
Lenders sell REO properties 'as is'. The buyer buys the home and all the problems that may come along with it. I.E., a home buyer finds a suitable REO property, decides to proceed and make an offer but chooses to have the home inspected. The inspection of the home indicates there is problem with the roof. A buyer can make an offer in spite of the findings, but the bank will most likely not repair any issues found by the inspector.