Buying a foreclosure or REO property in

What is an REO?

REO stands for Real Estate Owned. These are houses which have been foreclosed upon and are now held by the bank or mortgage company. This is different than a property up for foreclosure auction. If you buy a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accrued during the foreclosure process. You must also be ready to pay with cash in hand. And on top of all that, you'll get the property totally as is. That possibly could include current liens and even current residents that need to be put out.

A REO, conversely, is a more tidy and attractive proposition. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The lender will take care of the elimination 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 standard disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to reveal any defects of which they are informed.

Are REO's a bargain in Rice Lake?

It's commonly believed that any REO must be a good buy and an chance for easy money. This isn't always 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 usually 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 and selling foreclosures. But there are also many REO's that are not good buys and may lose money.

All set to make an offer?

Most mortgage companies have a REO department that you'll work with in 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 learn 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 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 hidden damage and terminate the offer if you find it.

As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've made your offer, you can expect the bank to make a counter offer. Then it will be your decision whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be working with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.

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