Audit and Accounting Guide - Depository and Lending Institutions

Chapter 11 Real Estate Investments, Real Estate Owned, and Other Foreclosed Assets

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2018, but becoming effective on or prior to December 31, 2018, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

Introduction

11.01 Generally, the largest component of real estate owned (REO), also known as other real estate owned (OREO), by lenders is assets taken in full or partial settlement of troubled loans through foreclosure or receiving physical possession of real estate property collateralizing a loan. Real estate investments, real estate loans that qualify as investments in real estate, and premises that are no longer used in operations may also be included in REO.¹ Once a bank obtains physical possession of the collateral, the real estate is included in REO. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs either when the creditor obtains legal title to the residential real estate property through foreclosure, even if the borrower has redemption rights whereby it can legally reclaim the real estate property for a period of time, or upon completion of a deed in lieu of foreclosure or similar legal agreement under which the borrower conveys all interest in the residential ...