REO foreclosures are properties owned by a lender that was not sold at a foreclosure auction.
Lenders will take ownership of the foreclosed property if it fails to sell. The lender will try to recoup the loss by selling the home through a realtor on the MLS.
This can be a great option for people that want to buy foreclosures because they might be able to obtain a very good deal.
Often times, you can buy a foreclosed home for 15-20 percent less than market value.
One thing to note though is that REO Foreclosures are sold “as is”, and that means many of them will be in dire need of repair.
Still, buyers can find some great deals in the case of REO Foreclosures, so they are worth giving a shot.
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How do REO foreclosures work?
Lenders use properties as collateral, which means whenever the borrower can’t pay their loan, the property can be sold by the lender to recoup their investment.
The foreclosure process starts after a set amount of missed payments. Initially, the lender sends a missed payment notice, however, if things continue, the lender sends a demand letter.
After 90 days, the lender sends a notice of default, subsequently continuing the foreclosure process.
During this faze, the homeowner still has the opportunity to work with the lender and come to a solution.
However, if they can’t do that, the bank will take the property and sell it on the market to recoup their initial loan offered to the borrower.
How to find REO properties?
The best way to find REO Foreclosures are at your local county courthouses and online auctions.
The price of the property is typically set at the amount owed, including any other associated fees.
Some lenders might accept less, depending on the situation.
Another great way to find foreclosures is by working with a real estate agent. For most local markets, you tend to find a group of realtors who specialize in foreclosure properties.
It’s a great way to find the property you are looking for.
What does REO stand for?
As we mentioned above, REO stands for real estate owned. A property becomes REO when the lender takes the property from the borrower for breach of contract.
There are also REO management companies used by lenders that will help with title, marketing, market analysis, redemption services, eviction services, and the final sale.
Buying REO property tips
- It’s very important to study the market and see if the REO property has a better value when compared to the others.
- Make sure that you get a pre-approval letter from your lender. Most REO Foreclosure has a lot of potential buyers. So if you find a property you like, it makes a lot of sense to have a pre-approval letter from your lender. It will be easier to start the purchase process and prevent someone else from buying the property.
- Create a list with REO Foreclosures and see which one you like the most. There are all kinds of different options, so it’s a good idea to create a top 3 and see which is the right option to keep in mind.
- Property assessment is a must-have. Since REO Foreclosures are sold “as is”, that means most of the time you will end up with damaged properties or homes that need a lot of repairs. You have to assess the property to see if it’s worth the purchase or not. Having a professional property inspector will help you solve this issue.
- It’s a good idea to do your own title search. The last thing you want to do is buy a property with outstanding liens.
REO Foreclosures can be a great purchase, but they also have their downsides.
That’s why we recommend you to use the tips and tricks presented above to prepare yourself when you purchase such a property.
Remember, one of the best ways to find a foreclosure, is to contact your local real estate agent.