Buying a REO or foreclosure in Colorado Springs
What is an REO?
REO's or Real Estate Owned are homes which have been through foreclosure and are now possessed by the bank or mortgage company. This is not the same as 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 accrued during the foreclosure process. You must also be ready to pay with cash in hand. And on top of all that, you'll get the property entirely as is. That possibly may consist of prevailing liens and even current denizens that may require removal.
A REO, on the other hand, is a much cleaner and attractive option. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from normal disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to make known any defects of which they are informed.
Is an REO in Colorado Springs a bargain?
It is sometimes believed that any REO must be a good deal and an possibility for easy money. This usually isn't true. You have to be very careful 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 motivated 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 buying foreclosures. But there are also many REO's that are not good buys and may not be money makers.
Prepared to make an offer?
Most banks 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. Before 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 taking 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 unseen damage and withdraw 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 submitted your offer, you can expect the bank to make a counter offer. From there it will be up to you to decide whether to accept their counter, or make another counter offer. Be aware, you'll be dealing with a process that probably 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.