Buying a foreclosure or REO property in

What is an REO?

REO stands for Real Estate Owned. These are homes which have completed the foreclosure process which the bank or mortage company now owns. 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 accumulated during the foreclosure process. You must also be ready to pay with cash in hand. Finally, you'll get the property completely as is. That might comprise current liens and even current denizens that may require eviction.

A REO, on the contrary, is a more tidy and attractive proposition. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The lender will deal with the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Take notice 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 typically requires sellers to make known any defects of which they are informed.

Is an REO in Del Mar a bargain?

It's commonly presume that any REO must be a steal and an opportunity for easy money. This simply isn't true. You have to be prudent about buying a REO if your intent is make money. While it's true that the bank is often anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When pondering 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. But there are also many REO's that are not good buys and may lose money.

Time to make an offer?

Most mortgage companies 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 getting 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 unseen damage and cancel the offer if you find it.

As with making any offer on real estate, you'll make your offer 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 counter offer. From there it will be your choice whether to accept their counter, or make another counter offer. Be aware, 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.