Buying a REO or foreclosure in Colorado Springs
What is an REO?
REO is short for Real Estate Owned. These are properties that have completed the foreclosure process which the bank or mortage company currently owns. This is unlike 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 accumulated during the foreclosure process. The buyer must also be ready to pay with cash in hand. To top everything off, you'll get the property completely as is. That might include existing liens and even current occupants that need to be removed.
A REO, by contrast, is a more tidy and attractive proposition. The REO property did not 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 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. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to tell you about any defects they are aware of.
Is an REO in Colorado Springs a bargain?
It's frequently though that any REO must be a good deal and an possibility for easy money. This isn't always true. You have to be cautious about buying a REO if your intent is to make money off of it. While it's true that the bank is often anxious to sell it fast, they are also strongly interested 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. But 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 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 receiving offers. Since banks most commonly sell REO properties "as is", it may be in your best interest to 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. Once you've made your offer, you can expect the bank to make a counter offer. At this point it will be your choice whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be working with a process that most likely 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.