Invest by Buying a Bank Owned Property - REO – Lesson 21

In our last lesson, Finding Investment Properties in Foreclosures – Lesson 20 we discussed how to find investment properties that were going through the foreclosure process. In this lesson we cover what happens when a foreclosure auction is unsuccessful and the bank/lender has to take the property back.

http://birddogprofits.blogspot.com/2008/09/finding-investment-properties-in.html


Commonly called REOs, the real name is OREO and it stands for ‘Other Real Estate Owned’ by banks. Make friends with your local lenders and let them know you are the one to call when they have a foreclosure looming or in progress. Hint: If you pre-qualify with lenders beforehand, they may call you sooner.

REO is an abbreviation for a REAL ESTATE OWNED property. The term REO can be used ambiguously, to describe a specific type of property, but in real estate the phrase real estate owned property indicates that the property in question has been foreclosed on and has been taken back by the mortgage lender or trustee. REOs and FORECLOSUREs are not the same thing. REOs are produced as a result of an unsuccessful foreclosure auction, in which a buyer for the property cannot be found, and so the lender repossesses the property to sell separately.

REO: REAL ESTATE OWNED property, as already stated, is a property that a mortgage lender takes back into its ‘care’ as a result of a foreclosure on a home in which no one had a successful bid on the house during a foreclosure sale.

Most real estate agents and realtors will back the idea that for novice homebuyers, those buying their first house, the idea of buying a REO property can be a good one for many reasons. Lenders will always highlight the fact that purchasing an REO from them is “the safest way to buy” real estate, generally as a result of there being no risk to the buyer (clear title), and no tenants to evict. In fact statistics show that when it comes to buying a home that has been foreclosed on, REO purchases are the more popular and safer method of purchase.

A bank, or mortgage lender, does not want to have a house or property on its books for long. Banks exist to make money; they want to invest money to make more money, as is the purpose of the finance world. Any property that the bank owns represents a future, potential financial investment that could be generating a profit if it invested into the stock market. When a house sits unoccupied the bank is not making any money from it and therefore it is in the best interest of the bank, or mortgage lender, to sell the house and invest the money.

To generate a quick sale some banks will offer many things to a prospective buyer, and because of this there are many benefits to buying a REO property. But, the biggest advantage is potential savings of up to 20% off home market values.

When a bank repossesses a home it always provides a good, clear title. This means that when you buy a bank owned property you know that it is yours and not someone else’s i.e. there is no doubt about the ownership of the property.

REOs can offer a real estate investor the advantage of getting a property at a discount with clear title. The big disadvantages are that you have to close on the property in your name. Banks will not accept purchase and sale agreements that contain the and/or assignes clause. This means that you have to find the money to buy the house, you cannot do a typical wholesaling deal where you get the property under contract and then sell (assign) the contract to another investor or buyer.


To Your Success!!

Mark V. Schwartz

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