What is a Foreclosure or REO Property?

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Foreclosures & REO’s

Foreclosures and Short Sales are a rapidly growing market in Seattle, and we have a team of REALTORS® that specializes in these markets. (Learn more about Short Sales here)

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What is a Foreclosure or REO Property?

Short Sales are basically when a property is sold at a foreclosure auction because the seller owes the bank more then they are selling it for. Because the seller cannot pay their mortgage payments anymore the bank takes back the home. Even though the word short sale sounds, well, SHORT, it can be a longer process for the bank to let go a property and loose money on it.

Sometimes the auctions drag out and attract little to no bidders and this can sometimes mean ending the auction and the home just goes back to the bank and the financial institution holding the lien carries the property. This is turn is called an REO or Real Estate Owned property.

Once the bank has possession of the property all financial obligations the owner once had with that property are now the responsibility of the bank including the HOA fees or anything the might accompany the property. The bank will also try and remove any and all other liens on the home such as tax liens or title and insurance issues. The bank will also have to make any necessary repairs to the property in order to sell it eventually and make it more attractive to buyers.

The best parts of buying a bank owned property are that buyers have significant leverage and may be able to turn the property around quickly, making money by speculating on above average returns. The property owner of course wants to try and get as much as they can from the home and try and recoup the loss but they also want to sell quickly so their money is not tied up in a property they are not making equity on and just to manage the property is a head ache they don’t want to have to deal with.

Most banks though have a asset management department for just these types of REO homes. The selling process starts when a potential buyer makes an offer to the financial institution, which is gone over by its management. Often, the institution will make a counteroffer, and the buyer may respond with another offer. After they have agreed on the price, terms, and conditions, a contract for the sale can be made, although this process is not quick by any means considering the amount of people actually involved.

If you are a buyer wanting to put in an offer on a REO home make sure you are aware of the other properties in the area and you know what they are currently worth along with any costs you may need for repairs the banks have not completed. The lenders usually sell these homes as-is and you need to be sure to have an inspection so you are well aware of any future costs involved. You can certainly cancel the transaction after an inspection and walk away unharmed.

Right now though, many of these homes are from decent homeowners that simply cannot pay their mortgage due to predatory lending practices and adjustable rates that got out of hand. A lot of these homes are still in great condition from owners that just couldn’t get out of a tough situation. Still, an inspection will be in your best interest no matter the situation.

Investors dedicate much to buying REO properties in terms of funds (often cash), work, time, and effort, thus the price needs to be far enough below market value to justify the risk. Foreclosures are properties that already have had problems that often include tax issues, a lack of maintenance, substantial repairs, and often needed improvements that cost a significant amount of money, and any investor looking to buy such a property needs to keep this in mind at all times.