what is REO propertiesIf you’re new to real estate investing you’re probably wondering… What is REO property?

REO property is also know as Real Estate Owned Property.

These are foreclosed homes taken back by the bank.

The great thing about REO properties is that they’re usually in need of repairs, and can be acquired for less than market value.

Most REO properties are listed with your local real estate brokers. And you can access this list by contacting local brokers or agents.

They’ll be glad to email you what’s available, and put you on their list of potential buyers.

A few Tips on investing in an REO property…

You think that you found the perfect home to flip, or did you? Sometimes it might appear to be too good to be true.

Sometimes you discover that you’re not the only one interested in the property; some have had an interest long before you made your offer.

And with REOs, it’s likely there are more than a few interested parties.

REO stands for Real Estate Owned, and is the acronym assigned to real estate that a bank owns after a foreclosure.

Let’s say you just made an offer and it’s accepted.

You’ll soon receive various documents from your agent, the bank and others addressing various aspects of your offer.

If you’re financing your flip, the lender will order a property appraisal to help determine current and future market value.

You’ll definitely order a property inspection and walk through the inspection with your contractor at your side.
You’ll also receive a preliminary Title Report.

A preliminary title report is a document showing the transfer of the property over time from when the lot was first purchased all the way to you.

A title report will show all previous owners and all previous liens. And current liens, as well.

When a bank forecloses on a property there can be existing liens from others. These liens might include a second lender.

It can include a lien placed due to delinquent property taxes. If the previous owners couldn’t pay their income taxes then there’s likely a federal tax lien showing up on the title report.

Did a contractor repair the roof and never got paid? Then there can be a mechanic’s lien on the house that can’t be released until the contractor gets paid.

Any and all existing liens on an REO home have to be satisfied or otherwise released before you can take full possession of the property.

This is the purpose of a title report, to now only show the transfer of ownership but to establish that when the bank transfers ownership to you at the settlement table, all previous claims to the property are resolved.

Most often, previous claims on the property are settled with proceeds from the sale. If there’s not enough money to pay all outstanding liens, then the sale can’t go through without some compromise from the lienholders.

Buying an REO property can be a good deal; just go into the deal with eyes wide open. There may be others just as interested in that property as you.

Talk soon,
David Slabon