Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are properties which have completed the foreclosure process and are currently possessed by the bank or mortgage company. This differs from 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 amassed 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 one-hundred percent as is. That possibly will consist of standing liens and even current occupants that may require expulsion.
A REO, by contrast, is a much neater and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The lender will see 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. Take notice that REOs may be exempt from normal disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to disclose any defects they are knowledgeable of.
Are REO's a bargain in Victorville?
It's occasionally assumed that any REO must be a good buy and an opportunity for easy money. This isn't necessarily 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 often 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 flipping foreclosures. Still there are also many REO's that are not good buys and may not be money makers.
Ready to make an offer?
Most lenders have a REO department that you'll work with while 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 find out as much as you can about what they know concerning the condition of the property and what their process is for accepting offers. Since banks most commonly 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 withdraw 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. After you've presented your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or make another counter offer. Realize, you'll be dealing with a process that probably involves several 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.