REO properties can give you a great deal at times. It is a matter of being lucky (or skilled) enough to get the right property at the right time. REO properties are Real Estate Owned properties owned by mortgage lenders, usually banks. When the borrower defaults on the repayment, the property comes in the possession of the bank which can be used to recover the debts. REO properties are sometimes sold at lower rates than the market value and are usually not hot properties that sell easily.
REO properties – How do lenders or banks get a hold of them
Mortgage loans from banks are not always paid off by the borrowers. As a result, a lot of times, mortgaged property comes into the possession of the lender (most usually the bank). The bank then sets up the property for a foreclosure auction. Most usually, the property does not get sold at the foreclosure auction as the base bid price is set at a price that covers the loan amount, the interest accrued on the amount as well as the other charges incurred in the process. So, this bid price is more than what the property is worth. As a result, hardly any foreclosure auctions result in a sale. The property then becomes an REO property and becomes a part of the portfolio of REO properties of the bank.
REO properties – How do they get sold
REO properties are not successfully bid for in foreclosure auctions. After the foreclosure stint, the bank is determined to sell off the property in order to generate some equity out of it and establish some liquidity. The person interested in buying one of the REO properties makes a bid to the bank to which the bank puts forward a counter offer. The counter offer is a higher amount than the one proposed by the prospective buyer. After a few more offers and counter offers, the deal gets approved and sealed and the transaction is closed.
REO properties – Who is responsible for the condition of the house
Banks usually want to sell the property in the ‘as is’ condition without any changes in the property on their part. The bank usually allows prospective buyer to take up any inspection procedure that he may want to, but may refuse to take up any repairs on the property. Some offers have repairs and inspection contingency that allows the prospective buyer to reject the property and terminate the sale if there is some irreparable damage to property. Usually, the deal is closed without further ado. Especially if there is an agent involved in between, the deal sees the light of the day faster than otherwise.
Sometimes, the bank also offers loan on REO properties. Though it is not a practiced policy, the bank may agree to offer loans depending on the situation.
In this way, the non performing asst of the bank is sold and liquidity is established for further lending transactions. Selling off REO properties is, thus, a way to stay in the business even when the default ratio gets higher.
