Buying a REO or foreclosure in Auburn

What is an REO?

REO's or Real Estate Owned are homes which have gone through foreclosure which the bank or mortage company currently possesses. This is unlike real estate up for foreclosure auction. If you buy 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 ready to pay with cash in hand. And on top of all that, you'll get the property completely as is. That could comprise prevailing liens and even current tenants that may require expulsion.

A REO, by contrast, is a much cleaner and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The lender will deal with the elimination of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Take notice that REOs may be exempt from normal disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that usually requires sellers to reveal any defects they are informed of.

Are REO's a bargain in Auburn?

It is commonly believed that any REO must be a good buy and an chance for easy money. This isn't always 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 usually anxious to sell it quickly, they are also strongly encouraged to get as much as they can for it. 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. There are bargains with potential to make money, and many people do very well buying and selling foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most lenders have a REO department that you'll work with while buying a REO property from them. Usually the REO department will use a listing agent to get their REO properties listed on the local MLS. Prior to 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 concerning the condition of the property and what their process is for taking offers. 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, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. Once you've submitted your offer, you can expect the bank to respond with a counter offer. At this point it will be up to you to decide whether to accept their counter, or make another counter offer. Be aware, you'll be working with a process that usually 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 days or even weeks.

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