Buying a foreclosure or REO property in

What is an REO?

REO stands for Real Estate Owned. These are properties which have been foreclosed upon which the bank or mortage company now holds. This is different than a property up for foreclosure auction. If you buy 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. The buyer must also be prepared to pay with cash in hand. To top everything off, you'll receive the property totally as is. That might consist of standing liens and even current occupants that may require expulsion.

A REO, conversely, is a much neater and attractive deal. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The lender will see 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. Take notice 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 ordinarily requires sellers to make known any defects they are aware of.

Is an REO in Delray Beach a bargain?

It's sometimes assumed 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 make a profit. 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 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. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. Still there are also many REO's that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most banks have a REO department that you'll work with in buying a REO property from them. Typically 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 discover as much as you can about what they know about the condition of the property and what their process is for getting offers. Since banks typically sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unknown damage and terminate 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. After you've presented your offer, you can expect the bank to respond with a counter offer. At this point it will be your choice whether to accept their counter, or submit another counter offer. Realize, you'll be contending with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.