Buying a foreclosure or REO property in
What is an REO?
REO stands for Real Estate Owned. These are homes that have been foreclosed upon and are presently possessed by the bank or mortgage company. This differs from real estate 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 accumulated during the foreclosure process. You must also be ready to pay with cash in hand. To top everything off, you'll accept the property entirely as is. That might comprise current liens and even current tenants that need to be kicked out.
A REO, conversely, is a much neater and attractive option. The REO property was unable to find a buyer during foreclosure auction. Now the bank owns it. The lender will take care of the elimination of tax liens, evict occupants if needed and generally prepare 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 typically requires sellers to tell you about any defects of which they are aware.
Is an REO in Covina a bargain?
It is commonly presume that any REO must be a good buy and an chance for easy money. This isn't necessarily true. You have to be cautious about buying a REO if your intent is make money. While it's true that the bank is usually 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. 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 lenders have a REO department that you'll work with while 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 concerning the condition of the property and what their process is for getting offers. Since banks typically 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 cancel 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 submitted your offer, you can expect the bank to make a counter offer. Then it will be your decision whether to accept their counter, or make 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.