Buying a REO or foreclosure in Durham
What is an REO?
REO is Real Estate Owned. These are properties which have been through foreclosure and are now 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 accrued during the foreclosure process. The buyer must also be ready to pay with cash in hand. And on top of all that, you'll receive the property one-hundred percent as is. That might consist of existing liens and even current residents that need to be removed.
A REO, on the other hand, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The lender will handle 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 standard disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to disclose any defects of which they are aware.
Are REO's a bargain in Durham?
It is sometimes assumed that any REO must be a steal and an chance for easy money. This just isn't true. You have to be prudent about buying a REO if your intent is to make money off of it. While it's true that the bank is typically anxious to sell it quickly, they are also strongly interested 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. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. Still there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most lenders have a REO department that you'll work with in 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. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and discover 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 most commonly sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unseen 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. After you've submitted your offer, you can expect the bank to respond with a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, 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 typical for the process of offers and counter offers to take days or even weeks.