Prior to moving forward, we should explain the disparities between Real Estate Owned (REO) by a bank and Foreclosure houses, as often these terms are used interchangeably.
Foreclosure occurs when the lender takes back real estate, on which the home owner cannot make payments. The foreclosure process and home owner rights are different from state-to-state. If you have a particular foreclosure question, it is advisable to consult with a real estate attorney within your respective state.
Whenever a home owner quits making payments on their mortgage, the lender can begin the foreclosure process. This is often a extremely specific legal and judicial process with absolute timelines and proceedings. In a foreclosure, the bank takes possession of the house and the property owner is forced to leave.
Foreclosures aren’t sold by Realtors. Foreclosure homes are auctioned at a Public Trustee Sale in the county in which the property is found. These auctions are open to the public. A person with funds on hand can make a bid on any foreclosed residence. Foreclosure properties need to be paid for fully, with a cashiers check at the time of the auction. If you do not have the proverbial suitcase filled with cash, a foreclosure auction may not be the best choice.
If you purchase a dwelling in a foreclosure auction, you could be susceptible to various legal, judicial and title concerns. These issues are typically investigated and overcome by Realtors and title companies in traditional sales transactions. These issues involve, but aren’t limited to: title complications, multiple lien holders, IRS liens, building liens, open permits, delinquent taxes, tenants or owners still occupying the home. There may also be structural, functional or bug infestation problems with the house.
Furthermore, you won’t get the chance to see and inspect the foreclosure property prior to the auction. The photos furnished (if any) may be outdated and no longer represent the actual condition of the house. Stories about disgruntled home owners damaging their homes during foreclosure proceedings have become prevalent.
A Bank Owned (REO) property is what a house can become if nobody acquires it during a foreclosure auction.
In the event the real estate isn’t sold, then the property is sent back to the lending bank and goes on the conventional marketplace for sale via a Realtor. Banks are typically quite motivated to sell these houses asap. Banks aren’t in the business of owning real estate. Banking institutions don’t want to own real estate, because ownership costs the Bank money. Banking institutions will need to pay property taxes, insurance coverage, and HOA fees, hence the longer an REO home remains on the books, the more it costs the Bank. Essentially, Banking institutions just want the money. This way they can make use of the money to make loans for automobiles, boats as well as other houses.
REO properties are a great deal for the general public.
Anybody can present an offer. Once the offer is accepted by the selling bank, the transaction continues just like a standard sale. The buyer can preview the property before making an offer. The buyer can have the purchase funded with a mortgage and also have the home inspected. The selling bank will often have its own set of addenda and disclosures, so it’s crucial that you review this information with a realtor and perhaps legal counsel.
REOs are generally sold “As-Is” with right to inspect.