Can banks lease REOs?

I don't know of any laws preventing them from doing so, but as was previously stated, I doubt many banks would want to take on the additional liability. Since banks don't generally have a property management division, it's unlikely that they would want to bother with day to day responsibilities just to make a little extra cash while the property is sitting there. I'm sure there are some small niche servicers out there that do this but I doubt there are many.