Buying a foreclosure or REO property in

What is an REO?

REO's or Real Estate Owned are homes which have been foreclosed upon and are currently held by the bank or mortgage company. This is not the same as 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 added during the foreclosure process. The buyer must also be willing to pay with cash in hand. To top everything off, you'll accept the property completely as is. That could include existing liens and even current tenants that may require expulsion.

A REO, by contrast, is a much cleaner and attractive proposition. The REO property was unable to find a buyer during foreclosure auction. Now the lender owns it. The lender will attend to the removal 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 typical disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to disclose any defects they are knowledgeable of.

Is an REO in Winston-Salem a bargain?

It is commonly though that any REO must be a good deal and an chance for easy money. This isn't always true. You have to be cautious about buying a REO if your intent is profit from the sell. While it's true that the bank is usually anxious to sell it fast, 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. The bargains with money making potential exist, and many people do very well buying and selling foreclosures. Still there are also many REO's that are not good buys and not likely to turn a profit.

Time to make an offer?

Most mortgage companies have a REO department that you'll work with when 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. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and discover as much as you can about what they know about the condition of the property and what their process is for taking offers. Since banks most commonly sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unseen damage and cancel 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 make a counter offer. Then it will be up to you to decide whether to accept their counter, or submit another counter offer. Realize, you'll be working with a process that usually involves a group of 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.