Buying a foreclosure or REO property in

What's an REO?

REO is an abbreviation for Real Estate Owned. These are properties which have gone through foreclosure and are now owned by the bank or mortgage company. This is different than 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. You must also be willing to pay with cash in hand. And on top of all that, you'll accept the property one-hundred percent as is. That could include current liens and even current denizens that may require expulsion.

A REO, on the contrary, is a much cleaner and attractive transaction. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from normal disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects they are informed of.

Is an REO in Salisbury a bargain?

It is commonly believed that any REO must be a steal and an opportunity for easy money. This simply isn't true. You have to be very careful about buying a REO if your intent is profit from the sell. While it's true that the bank is typically anxious to sell it promptly, they are also strongly encouraged 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 flipping foreclosures. But there are also many REO's that are not good buys and may lose money.

Time to make an offer?

Most lenders have a REO department that you'll work with while buying a REO property from them. Normally the REO department will use a listing agent to get their REO properties listed on the local MLS. Prior to 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 concerning the condition of the property and what their process is for taking offers. Since banks typically sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.

As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. Once you've submitted your offer, you can expect the bank to counter offer. At this point it will be your choice whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be working with a process that usually 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.