The challenges facing the real estate market in the last few years have brought to the forefront a term that many have never heard of, REO properties. REO stands for Real Estate Owned and most times is property taken back by a bank or mortgage company when they could not sell it at the foreclosure auction. Most foreclosure auctions do not result in any sort of bid because if there was enough equity in the property the owner would have probably sold the property and paid off the bank or mortgage company. Most foreclosure sales begin with a minimum bid that will include the loan balance, accrued interest, attorney’s fees and any other costs associated with the foreclosure process. Since what is owed the bank or mortgage company almost always exceeds what the property is worth, foreclosure auctions normally do not result in a successful sale which means the property reverts back to the bank or mortgage company which then becomes an REO, real estate owned property.
A bank REO property may or may not be a good deal. Many people think that by buying these properties they are getting a great deal and making a killing in the market. That sometimes is true but most often not. These are things to think about before an offer is made. You should always ask, are there any inspection reports, what work has the bank agreed to, how long will it take for the bank to accept the offer and are there any special forms that will be needed to complete the sale. Bank owned properties are almost always sold “as is” meaning there may be repairs needed or other liens on the property which will need to be satisfied before clean title will be conveyed. It may sound like the bank is just dumping these properties but they may be of assistance with handling an eviction, do some repairs, pay off homeowner’s association fees and negotiate with the IRS to remove any tax liens.
It is a lot of work but there are advantages to purchasing REO properties over foreclosed properties. Once a property becomes an REO property all the liens are removed and taxes are paid in full. REOs are normally listed with real estate agents and inspections are allowed prior to contract which means the property is typically restored to a salable condition. An additional benefit with REO properties is that the bank or mortgage company will many times offer better financing than they might offer for traditional properties. Lenders and mortgage companies do not want to hold on to these properties very long because of the cost to maintain so if you do your homework and are willing to take a risk it just might be your entry into the homeowner market.
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