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Cindy Mancina

Sales Associate

Purchasing a Bank-Owned Property or a Foreclosure?

 

What's an REO?

"REO" or Real Estate Owned are houses which have been foreclosed upon that the bank or mortgage company presently holds. This is unlike 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 amassed during the foreclosure process. The buyer must also be ready to pay with cash in hand. To top everything off, you'll get the property 100% as is. That could consist of current liens and even current residents that may require removal.

A bank-owned property, by contrast, is a much cleaner and attractive option. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The bank will see to the elimination of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing.

Do be aware that REOs may be exempt from typical disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects they are aware of. By hiring RE/MAX Classic, you can rest assured knowing all parties are fulfilling Michigan state disclosure requirements.

Is an REO property a bargain?

It is frequently believed that any foreclosure must be a steal and a chance for easy money. This frequently isn't true. You have to be prudent about buying a REO if your intent is make money. While it's true that the bank is typically anxious to offload it fast, they are also looking to get as much as they can for it.

Look carefully at the listing and sales prices of competing homes in the neighborhood when considering the purchase of an REO. And factor in any repairs or upgrades necessary to prepare the house for resale or moving in. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. However there are also many REOs that are not good buys and may lose money.

 

Prepared to make an offer?

Most banks have staff dedicated to REO that you'll work with in buying REO property from them. To get their properties advertised on the local MLS, the lender will frequently contract with a listing agent.

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 accepting 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, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender.

After you've presented your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter, or make another counter offer. Your deal could be final in one day, but that's usually not the case. Since offers and counter offers usually allow a day or more for the other party to respond (and employees at a bank don't work nights or weekends) you could be looking at a week or longer.