The Advantages of Buying Properties REO

by Allia Vidmer on February 1, 2010

It is quite possible that you have heard the expression REO property or properties REO before. When someone refers to a house or a building as something called properties REO it means that it is a property that has been returned to the bank after an unsuccessful foreclosure auction. Generally speaking, a foreclosure sale rarely results in a sale because usually what the bank is owed for the property is more than what the property is worth.

Most of the time when there is a foreclosure auction the bidding on the property in question starts with a minimum bid. This minimum bid usually includes a number of things, including the loan balance and any accrued interest. Also, to be factored in are attorney’s fees and any and all costs that are associated with the foreclosure process. As an individual and potential buyer, in order for you to bid at a foreclosure auction at all, you are required to have a cashier’s check in your hand for the full amount of your bid. More often than not, the total amount that the property would sell for is far more than what the market price of the house is worth. For this reason, the foreclosure auction results in no sale, and the property is returned to the bank and becomes part of their collection of properties REO.

Because the property now belongs to the bank, the mortgage on the property ceases to exist. Generally following an unsuccessful foreclosure sale, the bank is required to evict any persons living in or on the property. After the eviction of the tenants, or the squatters if that is the case. Often the bank will also pay to finance any repairs on the home or property. Very often the bank will attempt to negotiate with the IRS in order to arrange the removal of tax liens and the payoff of homeowner’s association fees.

Buying properties REO is a great way to save money when purchasing a house or property. Very often the properties that the bank or real estate companies have to sell are far cheaper than those that you would find in the general market. This affordability makes the idea of purchasing one of these properties very attractive to potential homeowners. Very often, new homeowners or young people who cannot afford to buy a house or apartment at market price will find success in purchasing a real estate owned property. Making this type of purchase is a smart decision for many reasons although it is important that if you are considering buying this kind of property, that you do all of your homework before making a bid.

For example, generally all banks want to sell their property in as is condition. This means that whatever condition the building is currently in, that is what you are going to be paying for if you try to bid on it. With that in mind, it’s critical that you make sure that you conduct a full inspection of the property before making any sort of financial commitment. It is not unusual for a bank to supply a pest certification, but other than that there is little they will do for the condition of the property. You may also want to check to see if the bank will give you a refund on any of the repairs that you make. It is rare that banks will offer to provide any additional financing, but if there is a significant amount of damage to the property, and you are planning on buying it as is, sometimes negotiations can be made.

As you can see there is a lot of research to do when buying these properties REO, but it may be the best purchasing decision for you.

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