Buying a REO or foreclosure in Auburn

What is an REO?

REO's or Real Estate Owned are properties which have been foreclosed upon and are presently possessed by the bank or mortgage company. This differs from 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 amassed during the foreclosure process. The buyer must also be prepared to pay with cash in hand. Finally, you'll accept the property entirely as is. That may include current liens and even current tenants that need to be removed.

A REO, on the other hand, is a much cleaner and attractive proposition. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank will take care of 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. Note 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 normally requires sellers to make known any defects they are knowledgeable of.

Are REO's a bargain in Auburn?

It's frequently believed that any REO must be a good buy and an chance for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is make money. While it's true that the bank is typically anxious to sell it promptly, they are also strongly encouraged to get as much as they can for it. When contemplating 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 also many REO's that are not good buys and may lose money.

Ready to make an offer?

Most banks have a REO department that you'll work with while buying a REO property from them. Commonly 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 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. Since banks typically sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unseen damage and cancel the offer if you find it.

As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've made your offer, you can expect the bank to counter offer. From there it will be your decision whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be contending with a process that generally involves multiple people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.

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