Buying a foreclosure or REO property in
What's an REO?
REO is short for Real Estate Owned. These are properties which have completed the foreclosure process and are currently owned by the bank or mortgage company. This is not the same as real estate 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. You must also be willing to pay with cash in hand. Finally, you'll receive the property completely as is. That possibly may comprise standing liens and even current residents that need to be removed.
A REO, conversely, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The lender will take care of the elimination 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. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects they are knowledgeable of.
Are REO's a bargain in Evansville?
It's commonly though that any REO must be a bargain and an chance for easy money. This isn't always true. You have to be prudent 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 soon, 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 and selling foreclosures. But there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most lenders 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. Before 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 about the condition of the property and what their process is for taking offers. Since banks almost always 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 unknown damage and retract 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 made your offer, you can expect the bank to respond with a counter offer. Then it will be up to you to decide whether to accept their counter, or make another counter offer. Understand, you'll be working with a process that probably involves a group of people at the bank, and they don't work evenings or weekends. It's quite common for the process of offers and counter offers to take days or even weeks.