A Guide To Real Estate Owned (REO) Properties

A Guide To Real Estate Owned (REO) Properties The process of buying a property is exciting, but it can be very expensive. Thankfully, there are plenty of nontraditional listing options Property buyers can look into that won’t break the bank. One such option for interested buyers to consider is a real estate owned (REO) Property. What Are REO Properties? Real estate owned properties are property that has fallen under the ownership of a mortgage lender or investor. There are several ways this can happen, but the property doesn’t automatically become REO once a lender takes possession. In order to recoup losses and get rid of the property in short order, a lender will first try to sell the property at auction. Unfortunately for the lender or investor, though, properties often don’t sell at auction. There are multiple reasons for this, the biggest one being that many property owners go into foreclosure because more is owed on the house than it’s worth, often because of a market downturn. The foreclosure process is also very costly and can involve attorney fees as well as the cost of seizing and securing the property. When the lender then tries to sell that property, they have to price above actual market value in order to recover the balance and their costs. If the lender who took possession of the property can’t sell the property at an auction, then the lender takes over ownership of the property. The lender then tries to sell the real estate owned property to minimize its losses. At that point, it becomes an REO property that often stays on the lender’s books for a while.

How Does A Property Gain REO Status? Although REO properties often arise out of the foreclosure process – when a property owner is unable to make their mortgage payments – the terms “REO” and “foreclosure” aren’t synonymous. REO status might also be the result of a property being given back to the lender after the previous owner moved out or passed away at the end of a reverse mortgage. If the heirs are unwilling to pay off the mortgage balance, refinance the property or sell it themselves, they can give the property back to the lender or investor. Pros And Cons Of REO Properties There are benefits and drawbacks to buying an REO property that ought to be considered. Pros Buying an REO property can be a good idea because houses are usually priced low. The lender wants a hassle-free process and typically hopes to create some competition among buyers. To do this, lenders will often list the property at a lower price, drumming up multiple offers and giving themselves the ability to choose the least risky option. Cons Although the low price point of an REO property can be appealing for property buyers, these types of property often need repairs. The lender usually won’t pay for the repairs because they don’t want to spend any more money than they already have on the property. These properties are often sold as-is, cobwebs and all.

Other Things To Consider When Buying An REO property In addition to finding listings and strengthening your offer once you find an REO property you like, there are a few other important factors to keep in mind when deciding whether to purchase the property. Consider the following things in order to determine whether a particular REO property is right for you: Getting A Real Estate Agent With REO Experience When you’re looking at foreclosures and other investor-owned properties, it’s helpful to work with someone who’s familiar with the REO market because these properties have their own peculiarities. Here’s what you can expect from an experienced agent: ● They’ll know how to structure an offer that looks most pleasing to a lender or investor. ● They’ll know what they expect to see in the offer and, just as importantly, what they don’t. ● They’ll probably have some experience in telling property buyers what needs to be done to make the house livable. Getting A Property Inspection A property inspection is key when it comes to buying an REO property. Although the lender or investor is unlikely to fix any problems that come out of the inspection, it’s still important to get one done. With a property inspection, you’ll find out anything that’s wrong with the house before you move into it, and you’ll have a better sense of what questions to ask the seller before completing the transaction. If there are any absolute deal-breakers regarding repairs, you’ll be able to back out of the deal before purchasing and only lose your deposit. If you and your real estate agent can get the investor to agree to an inspection contingency, you might not even lose that.

Understanding General Vs. Special Warranty Deeds In most property sales, there is typically a general warranty deed. A general warranty deed tells you a couple of things: ● The seller has the right to sell you the property as they currently own it. ● There are no other legal issues or claims to the property by anyone other than the seller. If you get a general warranty deed, no one can claim issues with your title from before you owned the property. The general warranty deed also lets you know that there are no liens and that the property is owned free and clear by the seller. However, with an REO sale, you may not be able to get a general warranty deed. In this situation, it’s common to instead receive a special warranty deed. In this instance, “special” doesn’t mean “better.” With a special warranty deed, the mortgage investor is likely to only guarantee that there are no additional title issues that have been created since they took over ownership. Although they have the right to sell the property, they can’t promise against other pre-existing title issues or liens. For this reason, it’s important to take precautions when purchasing an REO property. Considering Whether To Buy An Owner’s Title Policy One thing you might consider with an REO property is buying an owner’s title policy. You’re required to get a lender’s title policy, which protects the lender’s investment should there be another ownership claim against your property. But taking the extra step to get an owner’s title policy protects your investment against any pre-existing claims on the property. The owner’s title policy could be helpful when buying an REO property, as many of the available properties have been foreclosed on. This means previous owners probably had financial trouble and you may have to worry about tax liens or judgments on the property. Having an owner’s title policy could help you if anything comes up.