Buying a foreclosure or REO property in
What's an REO?
REO is Real Estate Owned. These are properties that have been through foreclosure which the bank or mortage company now holds. 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 added during the foreclosure process. The buyer must also be ready to pay with cash in hand. To top everything off, you'll receive the property totally as is. That possibly will consist of prevailing liens and even current tenants that need to be removed.
A REO, conversely, is a much cleaner and attractive deal. The REO property didn't find a buyer during foreclosure auction. The lender now owns it. The bank will deal with the removal 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 normal disclosure requirements. In California, for example, banks do not have to give a Transfer Disclosure Statement, a document that normally requires sellers to reveal any defects they are aware of.
Are REO's a bargain in Colorado Springs?
It's commonly presume that any REO must be a steal and an possibility for easy money. This isn't always true. You have to be very careful about buying a REO if your intent is to make money off of it. While it's true that the bank is usually anxious to sell it quickly, 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 may not be money makers.
Time to make an offer?
Most mortgage companies have a REO department that you'll work with when 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 concerning the condition of the property and what their process is for taking offers. Since banks usually 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 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. After you've made your offer, you can expect the bank to respond with a counter offer. From there it will be your decision whether to accept their counter, or offer a counter to the counter offer. Be aware, you'll be working 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.