Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are houses that have been foreclosed upon which the bank or mortage company presently possesses. This is different than real estate 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. The buyer must also be prepared to pay with cash in hand. Finally, you'll receive the property totally as is. That possibly may consist of standing liens and even current residents that need to be thrown out.
A REO, on the other hand, is a more tidy and attractive deal. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The lender will attend to the elimination of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. You should be aware that REOs may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that usually requires sellers to reveal any defects of which they are informed.
Is an REO in Cary a bargain?
It is occasionally assumed that any REO must be a good buy and an chance for easy money. This just 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 often anxious to sell it promptly, they are also strongly interested to get as much as they can for it. When contemplating 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 foreclosures. However there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most mortgage companies have a REO department that you'll work with in buying a REO property from them. Typically 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 discover 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 almost always 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 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 respond with a counter offer. At this point it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Understand, 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 typical for the process of offers and counter offers to take days or even weeks.