Buying a REO or foreclosure in Colorado Springs
What's an REO?
REO means Real Estate Owned. These are houses which have completed the foreclosure process which the bank or mortage company currently possesses. 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. You must also be ready to pay with cash in hand. To top everything off, you'll accept the property completely as is. That could include standing liens and even current residents that may require eviction.
A REO, on the contrary, is a much cleaner and attractive proposition. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The lender will take care of 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. Note that REOs may be exempt from normal disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects of which they are informed.
Are REO's a bargain in Colorado Springs?
It's frequently assumed that any REO must be a good deal 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 money. While it's true that the bank is usually anxious to sell it promptly, they are also strongly interested 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 buying and selling foreclosures. But there are also many REO's that are not good buys and may lose money.
Time to make an offer?
Most banks have a REO department that you'll work with while buying a REO property from them. Normally the REO department will use a listing agent to get their REO properties listed on the local MLS. Before 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 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. Once you've presented your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or make another counter offer. Understand, 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 typical for the process of offers and counter offers to take days or even weeks.