Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are homes that have been foreclosed upon and are presently owned by the bank or mortgage company. This differs from a property 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 accrued during the foreclosure process. The buyer must also be able to pay with cash in hand. Finally, you'll accept the property totally as is. That could include standing liens and even current residents that need to be expelled.
A REO, by contrast, is a much neater and attractive proposition. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The lender will take care of 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. Note 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 tell you about any defects they are informed of.
Is an REO in Santa Fe a bargain?
It's frequently presume that any REO must be a good buy 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 often anxious to sell it fast, they are also strongly motivated 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 buying 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 while buying a REO property from them. Commonly 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 find out as much as you can about what they know concerning the condition of the property and what their process is for getting offers. Since banks almost always sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unseen 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 submitted your offer, you can expect the bank to respond with a counter offer. From there it will be your choice whether to accept their counter, or make another counter offer. Realize, you'll be working with a process that generally involves several 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.