Buying a REO or foreclosure in Santa Fe
What's an REO?
REO is short for Real Estate Owned. These are properties that have been through foreclosure which the bank or mortage company currently possesses. 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 accumulated during the foreclosure process. You must also be ready to pay with cash in hand. And on top of all that, you'll receive the property one-hundred percent as is. That might comprise existing liens and even current residents that need to be kicked out.
A REO, by contrast, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The bank will handle 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. Take notice that REOs may be exempt from standard 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 informed of.
Are REO's a bargain in Santa Fe?
It is frequently assumed that any REO must be a good buy and an opportunity for easy money. This isn't always true. You have to be cautious 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 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. It is possible to find REOs with money-making potential, 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.
Ready to make an offer?
Most mortgage companies have a REO department that you'll work with when 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 regarding 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 terminate 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 make a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Be aware, you'll be dealing with a process that probably involves multiple people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.