Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are houses which have completed the foreclosure process which the bank or mortage company presently holds. This is different than 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 able to pay with cash in hand. Finally, you'll receive the property entirely as is. That could comprise current liens and even current denizens that may require removal.
A REO, by contrast, is a much cleaner and attractive deal. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will attend to 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. You should be aware that REOs may be exempt from typical disclosure requirements. For instance, in Calfornia, banks are exempt from giving 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 commonly presume that any REO must be a good deal and an opportunity for easy money. This isn't necessarily 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 typically anxious to sell it soon, they are also strongly encouraged 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 flipping foreclosures. But there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most banks 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 learn as much as you can about what they know about the condition of the property and what their process is for receiving 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 terminate 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 make a counter offer. At this point it will be your decision whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be contending with a process that generally involves several 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.