Pitbull Mortgage School provides real time education in the field of buying and selling REO properties.

Buying bank owned properties

There is a lot of interest in buying bank owned properties in today's marketplace. There seems to be a significant amount of information available with little or no guidance.

What's an REO?

REO stands for "Real Estate Owned".  These are properties that have gone through theforeclosure process and are now owned by the bank or mortgage company.  This is not the same as 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.  And on top of all that, you'll receive the property 100% "as is".  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much "cleaner" and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO's may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving a Transfer Disclosure Statement, in Ohio - banks are exempt from giving a Property Disclosure, both are documents that normally require sellers to tell you about any defects they are aware of. The REO process is designed for the industry professional with experience.

Is it a good deal?

<It's commonly assumed that any REO must be a bargain and an opportunity for easy money.  You have to be very careful about buying a REO  While it's true that the bank is typically anxious to sell the property quickly, they are also strongly motivated to get the highest price for the property.  When considering 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.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are REO's that are not good buys and not likely to turn a profit.
 
Ready to make an offer?

Most banks 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 the listing agent and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. At Park Realtors, our process can be easily read under "REO information", found on the left side of our website.
Since banks almost always sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.  As with making any offer on real estate, you'll make your offer more attractive if you include documentation of your ability to pay, such as a pre-approval letter from a lender and have an earnest money check.  Some banks won't even look at offers without those items.  After you've made your offer, you can expect the bank to make a counter offer.  Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  Realize, you'll be dealing with a process that probably involves multiple 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 at least 4-5 days or even weeks.