Buying a foreclosure or REO property in

What is an REO?

REO's or Real Estate Owned are houses which have completed the foreclosure process and are presently possessed by the bank or mortgage company. This is different than 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. Finally, you'll get the property completely as is. That might comprise standing liens and even current residents that may require expulsion.

A REO, on the other hand, is a much cleaner and attractive deal. The REO property didn't find a buyer during foreclosure auction. Now the lender owns it. The bank will deal with 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 standard disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects of which they are informed.

Are REO's a bargain in Santa Fe?

It is sometimes presume that any REO must be a steal and an opportunity for easy money. This simply isn't true. You have to be prudent 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 quickly, 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. It is possible to find REOs with money-making potential, and many people do very well buying foreclosures. However there are also many REO's that are not good buys and may not be money makers.

Ready to make an offer?

Most mortgage companies have a REO department that you'll work with while buying a REO property from them. Usually 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 receiving offers. Since banks typically 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 cancel 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 presented your offer, you can expect the bank to counter offer. At this point it will be your choice whether to accept their counter, or submit another counter offer. Be aware, 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.