Buying a foreclosure or REO property in

What's an REO?

REO's or Real Estate Owned are properties which have completed the foreclosure process which the bank or mortage company presently holds. 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 accumulated during the foreclosure process. The buyer must also be prepared to pay with cash in hand. Finally, you'll get the property entirely as is. That possibly could comprise current liens and even current denizens that may require removal.

A REO, on the contrary, is a much neater and attractive proposition. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The lender will take care of the elimination 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 typical disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects of which they are aware.

Are REO's a bargain in San Diego?

It is occasionally assumed that any REO must be a good buy and an chance for easy money. This isn't necessarily true. You have to be prudent about buying a REO if your intent is make money. While it's true that the bank is often anxious to sell it fast, 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. Still there are also many REO's that are not good buys and not likely to turn a profit.

Time to make an offer?

Most banks have a REO department that you'll work with in 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 find out as much as you can about what they know regarding the condition of the property and what their process is for taking offers. Since banks usually sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for unknown damage and retract 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. After you've presented your offer, you can expect the bank to respond with a counter offer. From there it will be your decision whether to accept their counter, or submit another counter offer. Understand, you'll be contending with a process that generally involves several 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.