A real estate-owned (REO) house, also called a bank-owned property, is generally one that did not successfully make it through the foreclosure auction process. As a matter of fact, rather than auctioning the home after foreclosure to discharge the original mortgage loan, the lender, which is ordinarily a financial institution such as a bank, takes over ownership of the home and endeavors to get rid of the property itself.
Because foreclosed properties generally cost more than they are worth (particularly when you tally up all the expenses linked to foreclosures aside from the actual price), not every foreclosure auction results in success. When this happens, the bank will claim ownership of the home and the home becomes real estate-owned. Fundamentally, the bank is at this point homeowner.
This also denotes the mortgage loan no longer exists, and the bank assumes the task of removing anyone who may still live in the home (both of which would be situations the successful bidder at the auction would have to take care of). The bank may even make repairs to the home.
Pointers for Buying Real Estate-Owned Property
Each Lender handles real estate-owned sales differently. One bank may try to sell an REO property at an auction, while another may employ the help of a realtor. It is good to familiarize with how the particular bank you are dealing with handles selling REO homes. Or, if you are particularly in the market for an REO property, look for a financial institution selling one using a method with which you are comfortable.
Meanwhile, consider these tips for purchasing an REO property:
Do not assume you will get something for nothing. Although the bank hopes to sell the home, it is not likely to be willing to sell it for a song. A bank will want the home's whole market value, or pretty close to it, and the bank may even present counter-offers after you tender your first offer. Certainly, remember to consider the condition of the property when you submit an offer or a counter-offer.
Request information about financing. Banks do not normally offer funding for homes they possess, but you can still ask. If the bank does not offer financing, make sure you are ready with another plan, as the bank may require it.
Carefully read the fine print. Although the bank may submit a few home repairs, it will likely want to get rid of the property "as-is". However, this does not mean you can not reach an agreement regarding certain other repairs or guarantees. Include such requirement in your offer and begin a negotiation process.
Request a property viewing. Even if the bank has repaired the property, or even agrees to make further repairs, you can always request to have a home inspector look at the place. You may also want to request any inspection reports for the home the bank has on file.
Get back-up. Whether a realtor or a lawyer, find a specialist who is experienced in handling real estate-owned sales. In addition to helping make sure you are receiving the best deal possible given the property and price, this person can help you present your offer, collect other required documents, and perhaps even negotiate the price.