Buying a REO or foreclosure in Rancho Palos Verdes

What's an REO?

REO means Real Estate Owned. These are properties that have completed the foreclosure process which the bank or mortage company currently possesses. This is different than a property up for foreclosure auction. If you buy a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees added during the foreclosure process. You must also be willing to pay with cash in hand. And on top of all that, you'll receive the property completely as is. That possibly could comprise existing liens and even current occupants that may require eviction.

A REO, on the contrary, is a much cleaner and attractive proposition. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The lender will attend to the elimination of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Take notice that REOs may be exempt from normal disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that usually requires sellers to disclose any defects they are aware of.

Is an REO in Rancho Palos Verdes a bargain?

It's commonly presume that any REO must be a good buy and an opportunity for easy money. This isn't necessarily true. You have to be prudent about buying a REO if your intent is make a profit. While it's true that the bank is often anxious to sell it soon, they are also strongly interested to get as much as they can for it. When contemplating 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 flipping foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.

Time to make an offer?

Most lenders have a REO department that you'll work with while buying a REO property from them. Commonly 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 about the condition of the property and what their process is for receiving offers. Since banks typically 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 unseen damage and cancel 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 presented your offer, you can expect the bank to respond with a counter offer. At this point it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be contending with a process that most likely involves several 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.