Tiffany Elder, MBA, Realtor
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Buying a REO or foreclosure in Durham

What's an REO?

REO's or Real Estate Owned are houses that have gone through foreclosure which the bank or mortage company now holds. This is not the same as 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 added during the foreclosure process. You must also be willing to pay with cash in hand. And on top of all that, you'll get the property entirely as is. That may include existing liens and even current tenants that may require expulsion.

A REO, by contrast, is a much cleaner and attractive option. The REO property was unable to find a buyer during foreclosure auction. Now the bank owns it. The lender 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 REOs may be exempt from standard disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to reveal any defects they are aware of.

Is an REO in Durham a bargain?

It is commonly presume that any REO must be a steal and an possibility for easy money. This usually isn't true. You have to be cautious about buying a REO if your intent is make money. While it's true that the bank is typically anxious to sell it fast, they are also strongly motivated to get as much as they can for it. When pondering 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 flipping foreclosures. However there are also many REO's that are not good buys and may not be money makers.

Ready to make an offer?

Most mortgage companies have a REO department that you'll work with when buying a REO property from them. Normally 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 concerning the condition of the property and what their process is for getting offers. Since banks most commonly 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 retract 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. After you've submitted your offer, you can expect the bank to respond with a counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be dealing with a process that most likely 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.