Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are houses which have been foreclosed upon which the bank or mortage company now 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. You must also be prepared to pay with cash in hand. And on top of all that, you'll get the property completely as is. That might comprise standing liens and even current residents that need to be kicked out.
A REO, conversely, is a much neater and attractive proposition. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The lender will attend to the elimination of tax liens, evict occupants if needed and generally arrange 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 example, in California, banks do not have to give a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects of which they are informed.
Is an REO in Delray Beach a bargain?
It's frequently presume that any REO must be a bargain and an opportunity for easy money. This usually isn't true. You have to be very careful 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 quickly, they are also strongly encouraged to get as much as they can for it. When pondering 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 not likely to turn a profit.
Ready to make an offer?
Most mortgage companies have a REO department that you'll work with in 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. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and discover as much as you can about what they know regarding 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 hidden damage and retract 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. At this point 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 a group of 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.