Buying a foreclosure or REO property in

What's an REO?

REO's or Real Estate Owned are houses which have gone through foreclosure and are presently possessed by the bank or mortgage company. This is different than 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 accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. Finally, you'll receive the property completely as is. That possibly will include standing liens and even current occupants that need to be kicked out.

A REO, by contrast, is a much cleaner and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the lender owns it. The lender will attend to the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from standard disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to reveal any defects of which they are knowledgeable.

Are REO's a bargain in Santa Fe?

It is frequently assumed that any REO must be a bargain and an opportunity for easy money. This just isn't true. You have to be prudent about buying a REO if your intent is profit from the sell. While it's true that the bank is often anxious to sell it soon, they are also strongly motivated to get as much as they can for it. When contemplating 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. 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 in 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 about the condition of the property and what their process is for accepting offers. Since banks usually sell REO properties "as is", it's often prudent 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, 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 made your offer, you can expect the bank to 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 unusual for the process of offers and counter offers to take days or even weeks.