Total Guide to REO Properties
Today’s current home buying market is HOT with interest rates at an all-time low and homes going for more money than in previous years. If you are ready to get your feet wet and purchase a home, but are worried you cannot afford a traditional home, it might be time you think outside of the box and consider purchasing a home through a nontraditional avenue.
Real estate-owned properties are a great option for potential buyers and investors who are interested in buying a home for a discounted price. Read more as our title & escrow experts elaborate:
What is an REO Property?
A real estate-owned property (REO) is a property that is no longer owned by the mortgage lender but is owned by the bank. Generally speaking, a bank does not want to own a property. Banks are not in the business of holding onto loans that aren’t making money, so oftentimes banks are more than willing to sell REO properties at a discount.
While banks are simply not going to give away these properties for next to nothing, these properties are generally sold at discounted rates. A savvy investor who knows the market can make an attractive profit if they go about buying an REO property the right way.
How a Property Becomes an REO
The process that takes a once customer-owned property to a bank-owned property generally goes through the following three stages:
1. Payment default
When a homeowner—the borrower—defaults on their mortgage payments they will start to receive notices, such as a Demand Letter notice and then a Notice of Default. When the homeowner does not make any attempts to resolve the outstanding payments and restore the loan, the property goes into foreclosure.
A foreclosure is when more money is owed on the house than it is worth. REO properties are often the result of a foreclosure. An REO and foreclosure are NOT synonymous terms.
2. Foreclosure auction
For the mortgage lender to recoup its losses, the lender will try to sell the home at a public auction. However, sometimes the lender may not be able to sell the property at the auction.
3. Bank-owned
When a property does not sell in the foreclosure auction it automatically becomes an REO property. At this part of the process, the bank will then try to sell the property on its own. With the use of a broker, the bank will prepare the property for sale, remove any occupants or liens on the property, and determine a price.
REO Properties Can Be a Smart Investment
There are often a lot of misconceptions when it comes to buying an REO property. Homes that were once bank-owned are often viewed unfairly as money pits packed full of costly repairs or entrenched in legal problems, such as difficult contract negotiations and liens.
While all this can be true, buying a real estate-owned property can still offer an extraordinary opportunity. Here are some reasons why buying an REO property is likely a smart investment:
1. Bargain prices
Who doesn’t love a great deal? When purchasing an REO property, consider the bank’s asking price and the amount of repair work that may be needed. Most of the time you may be able to walk away with a ‘steal’.
2. Opportunity for a home inspection
A potential buyer can request a home inspection before contract—this is something that is not allowed in a foreclosure auction.
Having the opportunity for an inspection will allow the potential buyer to understand exactly what they are getting into with the home’s current conditions and necessary repairs. This will allow the potential buyer to decide if the property is financially worth their time. Additionally, a home inspection report may also assist when it comes to negotiating the home’s price.
3. No outstanding taxes
When an REO property is sold it is generally sold free of title liens and any outstanding claims and/or issues such as delinquent taxes or HOA liens. This can help potential buyers save a lot of money.
4. No homeowners
A favorable consequence of buying an REO property is not having to work with the homeowners. This saves time and energy during the negotiation period since an investor will not be dealing with a seller that has personal attachments to the property.
In most cases, the owner—the bank—is ready to be relieved of the property so it can recoup its losses.
Complete the Purchase of an REO Property with True Concept Title
Ready to take the next step as a savvy real estate investor with an REO property?
At True Concept Title, our national title experts will support you and guide you throughout your entire REO purchase. With offices on the East and West Coasts, we are there for all your real estate services and needs. Call 813-263-7168 today to speak with a top-rated title specialist.
