WHAT IS A REO FORECLOSURE PROPERTY?

What is REO?  Do a little research into the world of foreclosures, and soon you’ll be completely and utterly confused.  Don’t feel bad.  The same was true for me when I first started investing in real estate, and I’m sure it’s also the case for many others.  

You’ll hear many terms related to foreclosures including: pre-foreclosures, post-foreclosures, judicial foreclosures, non-judicial foreclosures, short sales, REO properties, HUD Homes, and the list goes on.  

I’ve written another article that explains the different types and stages of foreclosures, but in this post, I’ll focus just on explaining what is REO.

What Is REO?

REO stands for “real estate owned.”  It’s a term that applies to foreclosures where the lender has taken possession of a property when it fails to sell at auction.  

The acronym REO is typically associated with properties that go back to a bank, however, banks aren’t always the ones who end up with foreclosures.  Properties can go back to the VA, SBA, IRS, HUD, and any other number of institutions.

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Regardless of the company or institution, when you see REO referenced, it simply means that a foreclosure did not sell at auction, and the lender has taken ownership of the property.

Do REOs Make Good Investment Properties?

REO properties are frequently sought after by real estate investors because they can often be acquired well below market value.  However, here are a few things to consider before buying a REO foreclosure property:

No Seller’s Disclosure Statement

Most non-foreclosure listings will include what’s called a “seller’s disclosure statement.”  This is filled out by the seller and discloses (or should disclose) a variety of issues the seller is aware of.  

Since foreclosure listings don’t include a seller’s disclosure statement, you’ll want to thoroughly inspect the property before submitting an offer.

Sold “as is”

This simply means that the lender will not do any repairs to the property.  You are buying the property “as is.”

Additional Closing Costs

You should expect to pay transfer taxes along with county and state fees.

Long Waits

Despite being motivated to sell, banks can take their sweet time when it comes to responding to offers.  Expect to wait up to two weeks to get a response to your offer.

Added Paperwork

You can expect more paperwork required to submit an offer than with a regular sale.

Penalties for not closing on-time

Expect to pay a penalty if you close past the predetermined close date.  Be sure to work with your lender to establish a reasonable closing date before submitting your offer.

Where To Find REO properties

You can find REO foreclosure listings via any number of 3rd party sites such as www.foreclosure.com or www.realtytrac.com.  

However, the best thing to do is have a Realtor pull a foreclosure list for you from MLS.  It won’t cost you anything and should only take about 5 minutes.  Furthermore, if you decide the submit an offer, you’ll have a Realtor to assist you.

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