Our bank won the bid at Sherrif's Sale for a piece of property tied to a loan that has been charged off (there were several creditors involved). Since we had to pay for the property, is it acceptable to book the OREO for cost even though the loan was charged off?

Did you charge off 100% of a loan with real estate as collateral ? That would be an unusual practice. You should book the OREO at appraised value less some reasonable percentage for handling and marketing costs. Then the OREO would be at fair value, which is what is required per GAAP. I apologize if I missed something here. But you should have had an appraisal to know what to bid and establish the deficiency.

Don, I wonder if anon was in the first lien position?

I have the same question as Don. If there was collateral value, why would the loan have been charged off??? If there wasn't value, why did they bid on the property?

I'm not sure that the why's are relevant to this question. Accounting for OREO is done according to GAAP as Don pointed out. This is independent of disposition of the loan. If the loan has been charged off, as indicated, and any proceeds are received from the purchase, they would be applied to the loan as a recovery. Otherwise, the charged off loan would not be affected.

Thanks for your replies. At this point I have not seen the documentation relating to this transaction so I am also confused. It was explained to me the bank received a judgement on this loan after it was charged off and the property was bid on to satisfy the judgement. The bank did not have a first lien position, but by taking this approach stands to recover the entire charge off. The appraised value is greater than both the charge-off balance and the cost of the bid. Booking the OREO at fair value would create a gain, and I haven't found anything showing that a gain prior to disposition is allowed. Thanks again for your opinions.