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Buying a REO or foreclosure in Rancho Palos Verdes

What is an REO?

REO's or Real Estate Owned are houses that have been through foreclosure which the bank or mortage company currently owns. This is not the same as real estate 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 accrued during the foreclosure process. The buyer must also be prepared to pay with cash in hand. Finally, you'll receive the property entirely as is. That possibly may consist of prevailing liens and even current occupants that may require removal.

A REO, on the other hand, is a much cleaner and attractive transaction. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from typical disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects of which they are informed.

Is an REO in Rancho Palos Verdes a bargain?

It's frequently assumed that any REO must be a good buy and an possibility for easy money. This usually isn't true. You have to be very careful about buying a REO if your intent is make money. While it's true that the bank is usually anxious to sell it quickly, 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. There are bargains with potential to make money, and many people do very well flipping foreclosures. However there are also many REO's that are not good buys and may not be money makers.

Time to make an offer?

Most mortgage companies have a REO department that you'll work with in 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. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know regarding the condition of the property and what their process is for accepting offers. Since banks almost always sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for unknown damage and retract the offer if you find it.

As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. After you've presented your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or make another counter offer. Be aware, you'll be working with a process that generally involves a group of 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.


Excel Funding Real Estate Services, Inc.

28924 South Western Avenue, Suite 110
Rancho Palos Verdes, CA 90275