Looking for a foreclosure or REO property in NJ or PA?
What is an REO?
REO is an abbreviation for Real Estate Owned. These are houses which have been foreclosed upon 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 amassed during the foreclosure process. The buyer must also be prepared to pay with cash in hand. And on top of all that, you'll accept the property entirely as is. That possibly could consist of existing liens and even current occupants that need to be kicked out.
A REO, on the contrary, is a much cleaner and attractive deal. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The lender will handle the elimination of tax liens, evict occupants if needed and generally plan 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 instance, in Calfornia, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to reveal any defects they are informed of.
Are REO's a bargain in New Jersey?
It's occasionally believed that any REO must be a good buy and an opportunity for easy money. This just isn't true. You have to be cautious about buying a REO if your intent is make money. While it's true that the bank is typically anxious to sell it soon, they are also strongly motivated to get as much as they can for it. When pondering 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 flipping foreclosures. But there are also many REO's that are not good buys and may lose money.
All set to make an offer?
Most mortgage companies have a REO department that you'll work with when buying a REO property from them. Typically 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 discover as much as you can about what they know about the condition of the property and what their process is for accepting offers. Since banks most commonly sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.
As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've presented your offer, you can expect the bank to counter offer. Then it will be your decision whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be contending with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.