How to reformat a used iMac without any restoration disc.

We were recently giving a used 2007 iMac. It still has all the previous owners settings and applications. How do I reformat the computer to factory settings without any of the disc that came with the computer.

I don't have experience with 2007 Mac, but with the newer machines and Snow Leopard, you can use any newer version OS X installer
Actually, if the newer OS was purchased at the app store, then its license is tied to the Apple ID it was purchased with and the license is not transferable, meaning they are running a pirated copy. That also means that the seller is obligated to erase the disk and reinstall the original OS.
The buyer of such a Mac will never be able to reinstall unless they purchase their own license as Apple's servers will check the machine/Apple ID; in order to do that, they would need Snow Leopard in order to wipe the drive, install SL, and then purchase the newer OS using their own Apple ID.

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