Real Estate Owned (REO)
Definition of "Real estate owned (REO)"
The definition of real estate owned (REO) is known by heart by house flippers or by real estate agents specialized in bank owned properties. These are properties that once used to be in a mortgage contract, but the borrower defaulted on the loan or couldn’t make the payments, so the bank ended up owning the property.
According to RealtyTrac®, one in every 2433 homes is in foreclosure. If the foreclosure sale is not successful, the bank will have to further handle the sale of the property in order to recover the loan in part or in full. The main disadvantage for the buyers is that disclosure laws do not apply in this situation, so lenders do not give any information about the house. Buyers must sign documents that protect the banks for any legal actions after the sale if the house had defects or any kind of problems. Properties are sold “As-Is”.
Real estate owned or bank owned properties can be found on the Multiple Listing Service (MLS), at real estate brokers, or at REO Banks and Government Loan Insurers. The buying process usually takes some time, so as soon as you find a property, you will have to register for its auction. The winner will be instructed on the next steps upon completion of the auction but it is always good to hire a real estate attorney.
Some REO properties may be vacant but others might be occupied and may require eviction. If occupied, you may already have a tenant. Anyway, buyers are required to do their due diligence prior to the auction and read the rules. The price of an REO property could be lower due to the fact that it attracts fewer buyers, but these buyers might be more experienced in real estate investments than you are. If you don’t feel like having what it takes to start investing in REO properties, look for a real estate agent in your area to find the best properties on the MLS. By doing so, you get more information on the house you like and lower the risk of making a poor decision.
Last, but not least, you have to know what a real estate auction is. These usually take place on location or in hotel conference rooms and are very fast. So, no matter how tempting a property from a different state may look, try to choose a house you can inspect personally. Another rule that investors apply in their purchases is this: you must pass by the property at least two times a day. So, if it’s not on a route you travel often, it’s probably not a good idea to invest in it.
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