What’s an REO?
REO’s or Real Estate Owned are properties that have completed the foreclosure process and are presently owned 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 amassed during the foreclosure process. The buyer must also be able to pay with cash in hand. And on top of all that, you’ll receive the property totally as is. That might consist of existing liens and even current residents that may require eviction.
A REO, on the other hand, is a much neater and attractive deal. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will handle the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from typical disclosure requirements. For instance, in Calfornia, banks do not have to give a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects of which they are aware.
Are REO’s a bargain in Delray Beach?
It’s commonly though that any REO must be a good buy and an possibility for easy money. This usually isn’t true. You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank is usually anxious to sell it quickly, they are also strongly encouraged to get as much as they can for it. When pondering 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. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. But there are also many REO’s that are not good buys and may not be money makers.
Time to make an offer?
Most mortgage companies have a REO department that you’ll work with when 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. 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 regarding the condition of the property and what their process is for accepting offers. Since banks usually sell REO properties “as is”, it’s often prudent 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. Once you’ve submitted your offer, you can expect the bank to make a counter offer. At this point it will be your choice whether to accept their counter, or submit another counter offer. Understand, you’ll be working with a process that generally involves a group of people at the bank, and they don’t work evenings or weekends. It’s not uncommon for the process of offers and counter offers to take days or even weeks.