Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are properties which have been through foreclosure which the bank or mortage company currently owns. This is different than 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. The buyer must also be able to pay with cash in hand. And on top of all that, you'll get the property entirely as is. That possibly will consist of prevailing liens and even current tenants that may require removal.
A REO, by contrast, is a much cleaner and attractive deal. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. You should be aware that REOs may be exempt from standard disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects of which they are knowledgeable.
Are REO's a bargain in Santa Fe?
It's occasionally believed that any REO must be a good deal and an opportunity for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is make a profit. While it's true that the bank is usually anxious to sell it promptly, they are also strongly motivated 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. There are bargains with potential to make money, and many people do very well buying foreclosures. Still there are also many REO's that are not good buys and may lose money.
Ready to make an offer?
Most lenders have a REO department that you'll work with while 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. Prior to 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 regarding the condition of the property and what their process is for receiving offers. Since banks usually 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 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 presented your offer, you can expect the bank to make a counter offer. From there it will be your choice whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be dealing with a process that usually involves multiple 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.