If you are assigning the contract, why do you need an LLC? It doesn't matter if it is an REO or an FSBO. You are not the one closing on the contract. You should be using an entity for tax reasons, not liability concerns.
I understand that you may not need it for liability reasons, although my lawyer and other investors I follow believe in using one to protect myself as a wholesaler. As far as REO's, I assign the LLC that holds the contract into a different name because banks do not allow you to assign the contracts.
If you are assigning the contract, why do you need an LLC? It doesn't matter if it is an REO or an FSBO. You are not the one closing on the contract. You should be using an entity for tax reasons, not liability concerns.
If you are wholesaling, you will be assigning the contract, and not closing. The bank will not be cool with that, you will need to assign the interest in the LLC.
As for liability, I would not worry. You can be sued for anything at anytime. Forget the LLC protection. I could blow right past that in a lawsuit. The big question is how to assign an REO. Assign the interest in your LLC, just make sure the LLC only has a contract on that property, and does not hold anything else. :D