Buying a foreclosure or REO property in

What is an REO?

REO is Real Estate Owned. These are houses that have been foreclosed upon which the bank or mortage company now possesses. 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 added during the foreclosure process. You must also be able to pay with cash in hand. To top everything off, you'll accept the property entirely as is. That may consist of prevailing liens and even current occupants that need to be evicted.

A REO, conversely, is a much cleaner and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the lender owns it. The bank will deal with the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. You should be aware 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 ordinarily requires sellers to make known any defects they are informed of.

Is an REO in Tampa a bargain?

It is commonly though that any REO must be a bargain and an opportunity for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is profit from the sell. While it's true that the bank is typically anxious to sell it soon, they are also strongly encouraged 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 flipping foreclosures. But there are also many REO's that are not good buys and may not be money makers.

Prepared to make an offer?

Most lenders have a REO department that you'll work with when 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. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and learn 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 most commonly sell REO properties "as is", you may want 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, 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 your decision whether to accept their counter, or submit another counter offer. Realize, you'll be working with a process that usually involves several people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.