 |
REO stands for Real Estate Owned property. It essentially means that a bank or lender has foreclosed a property but is unable to sell it off in a foreclosure sale. So basically, an REO is repossessed property that the mortgage lender is unable to sell of in a foreclosure sale.
There is no clear answer to which is a better buy – an REO or a foreclosure. It depends upon the situation and your own ability to profit from what you purchase. There are benefits and liabilities to both an REO and foreclosure before, during, and after the purchase.
|
It is important to approach an REO with an open mind – do not assume that there is something wrong with the property just because the bank could not find a buyer for it during the foreclosure sale. In fact, REOs are a safe way to purchase foreclosed property. You do not have to deal with tenants and there are no title issues. An REO is considered a risk-free real estate buying option particularly for the novice buyer.
Banks will go out of their way to make an REO purchase comfortable for the buyer. The reason for this is that any asset sitting idle and not generating money is bad for the bank’s health and its image with the shareholders.
Banks and large lenders are known to have offered as much as a 20% discount on home market value just to get the idle property off its balance sheets. Banks make the buying process as smooth as possible and cover taxes as well as eviction-related problems so that the sale happens quickly. Property appraisals and inspections happen that much faster with an REO purchase.
Since banks are keen to secure the sale they will be willing to accept a less-than-normal down-payment from the interested party.
A foreclosure on the other hand consists of bids to auction off the property. It begins with a minimum bid, the minimum bid covers a lot many costs and if you are planning to attend a foreclosure sale then you have to understand the components of the minimum bid. These include the balance amount of the loan; interest accrued till date, attorney fees, and the various costs associated with the foreclosure process.
If you bid successfully at an auction you get the property in an “as is” condition. This means that there may be tenants and people on the property and some part of the property in lien to another lender – you become responsible for this amount. In short, a foreclosure sale comes with its own headaches. The one benefit a foreclosure sale offers is of easy financing since the bank wishes to wash its hands off the property soon. Also if you are wishing to invest in real estate, you may land a good deal with a foreclosure sale particularly if there are tenants there already who may wish to continue staying there.
