It is property owned by a lender, such as a bank, that has not been successfully sold at a foreclosure auction.
A lender—often a bank or quasi-governmental entity such as Fannie Mae or Freddie Mac—takes ownership of a foreclosed property when it fails to sell at the amount sought to cover the loan.
Also negotiating a deal for a bank-owned property is different than homeowner negotiation. Banks have to consult with several other people like asset managers before giving a definitive answer to any of your questions.
Your final offer may also require corporate approval. You may sometimes be asked to sign a purchase addendum, like owner occupied agreement or other terms when taking ownership.
Remember: Most times an REO property is sold “as-is,” meaning anyone who purchases the property will be responsible for any further repairs the property will need. Knowing this, an inspection should be conducted by a licensed professional. In some cases, the inspection may have already been conducted by the lender once the property is owned by the bank. If this is the case, ask for a copy of the inspection report and review it before making any final decisions.