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

What's an REO?

REO means Real Estate Owned. These are houses that have gone through foreclosure which the bank or mortage company now owns. This differs from real estate 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 amassed during the foreclosure process. The buyer must also be prepared to pay with cash in hand. To top everything off, you'll accept the property entirely as is. That could include standing liens and even current denizens that need to be thrown out.

A REO, by contrast, is a much cleaner and attractive deal. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The lender will see to the elimination of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. You should be aware 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 normally requires sellers to make known any defects of which they are aware.

Are REO's a bargain in Durham?

It's frequently though that any REO must be a good deal and an opportunity for easy money. This usually isn't true. You have to be prudent about buying a REO if your intent is make money. While it's true that the bank is usually anxious to sell it soon, they are also strongly encouraged 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 buying foreclosures. However there are also many REO's that are not good buys and may lose money.

Prepared to make an offer?

Most mortgage companies have a REO department that you'll work with in 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. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and learn as much as you can about what they know regarding the condition of the property and what their process is for taking offers. Since banks usually 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 unknown damage and withdraw the offer if you find it.

As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've submitted your offer, you can expect the bank to counter offer. At this point it will be up to you to decide whether to accept their counter, or submit another counter offer. Realize, you'll be contending with a process that most likely involves multiple people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.