Buying a REO or foreclosure in Rancho Palos Verdes

What is an REO?

REO's or Real Estate Owned are houses that have completed the foreclosure process and are currently possessed by the bank or mortgage company. This is unlike 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 accumulated during the foreclosure process. You must also be able to pay with cash in hand. Finally, you'll get the property entirely as is. That may comprise existing liens and even current residents that need to be expelled.

A REO, on the contrary, is a much neater and attractive transaction. The REO property didn't find a buyer during foreclosure auction. The lender now owns it. The lender will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from standard disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to make known any defects they are informed of.

Are REO's a bargain in Rancho Palos Verdes?

It is commonly believed that any REO must be a good buy and an chance for easy money. This simply isn't true. You have to be prudent about buying a REO if your intent is to make money off of it. While it's true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering 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. It is possible to find REOs with money-making potential, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and may not be money makers.

Ready to make an offer?

Most lenders have a REO department that you'll work with when 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 discover as much as you can about what they know concerning the condition of the property and what their process is for accepting offers. Since banks typically sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for hidden 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. After you've submitted your offer, you can expect the bank to make a counter offer. From there it will be up to you to decide whether to accept their counter, or submit another counter offer. Be aware, you'll be contending with a process that probably 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