Underwater mortgages, default payments, foreclosures, repossessions and REOs, these are becoming the common issues that people hear nowadays; and it cannot be denied that this is due to the economic slump that hit the U.S. and throughout the world a couple of years back. And the real estate market is the most hardly hit by this crisis. It is no wonder that nowadays Real Estate Owned properties or REOs abound the market and are becoming a major problem for banks and other lending institution.
Real Estate Owned properties or REOs are properties or homes that went through a foreclosure procedure and are now owned by banks or any other lending institution. This came about because of borrowers defaulted on their monthly payments of their mortgages, and the lenders have no other recourse but to take a severe action of foreclosure. Of course this extreme action of repossession went through strict foreclosure procedures such as, default notices, pre-foreclosure process and finally the foreclosure stage where the lending bank took possession of the property or home. Thus, the property becomes a Real Estate Owned property or REO.
Usually REOs are being disposed by the banks at low prices even lower than their market values; this is because of the need to rid their books of these properties as soon as they can because these REOs are non-performing assets. And what is more is that these properties need maintenance which is additional expenses on the bank’s part. And there are liens against these properties that the bank may have to repay.
On the bright side, of course this is for those who want to buy a home or to those who want to invest in these kinds of properties; this can be a great opportunity to grab. There are great saving potential in these properties.
REO’s are becoming the favorite of house flippers or those who invest in buying and reselling real estates. House flipper usually buy these REO’s and have them fixed and repaired before they sell them for a handsome profit. These brokers take advantage of the banks’ readiness to dispose these REO’s as quickly as they can, thereby getting the best prices that anybody can imagine. Some banks are even willing to sell their REO’s at 30% less of their market value, going as far as throwing in some appliances in the deal. It is also often rife with incentives in the form of special deals, attractive financial terms and allowances for repairs, etc.
For an ace investor, his strategy is to make it difficult for the bank to sell an REO by not attending foreclosure auctions; in this manner the bank will be put in a more difficult situation to dispose the property, thus forcing the bank to throw in more incentives than the usual, to make it more attractive.
It is more advantageous to purchase an REO property than buying through a conventional foreclosure auction, because a buyer can inspect the home before the completion of the sale. In this way the buyer avoids purchasing the property blindly. Inspecting the property before buying it is beneficial because it can give you an idea how much will you spend for the repairs of the home to put it in good condition?
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