Buying a foreclosure or REO property in
What's an REO?
REO is short for Real Estate Owned. These are homes which have been foreclosed upon and are currently held by the bank or mortgage company. This is unlike a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. The buyer must also be able to pay with cash in hand. Finally, you'll receive the property totally as is. That possibly could consist of existing liens and even current occupants that may require removal.
A REO, by contrast, is a much neater and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the lender owns it. The bank will deal with the elimination of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from standard disclosure requirements. In California, for example, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to tell you about any defects they are aware of.
Are REO's a bargain in Loveland?
It is occasionally believed that any REO must be a bargain and an opportunity for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is make a profit. While it's true that the bank is often anxious to sell it promptly, they are also strongly interested to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. There are bargains with potential to make money, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.
Prepared to make an offer?
Most mortgage companies have a REO department that you'll work with in buying a REO property from them. Usually the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for getting offers. Since banks most commonly sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unknown damage and withdraw the offer if you find it.
As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've made your offer, you can expect the bank to respond with a counter offer. From there it will be your choice whether to accept their counter, or make another counter offer. Be aware, you'll be dealing with a process that generally involves several people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.