An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You will see the terms bank owned property, REO, and foreclosure used interchangeably but there are some technical distinctions. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. It becomes an REO, or “real estate owned” property.
Do I need to pay cash to buy a foreclosure or bank owned property?
While many cash investors do like to buy foreclosures, you don't have to be able to pay in cash in order to buy one. In most cases, buying a foreclosure at an auction will require cash or a cashier's check in hand at the sale, but REOs that are listed on the market can be purchased with a loan.
Talk with a lender about your options. Some lenders offer specialized loan programs for this type of transaction, based on your eligibility. Some buyers use renovation loans, such as FHA 203(k) or Fannie Mae HomeStyle, which allow borrowers to finance both the purchase price and the cost of renovations into a single mortgage. Foreclosure properties, especially those sold in "as-is" condition, often require repairs or renovations.
If the foreclosure property is in relatively good condition and meets standard appraisal and inspection requirements, traditional mortgage financing may be an option. Before you set out to buy a foreclosure or bank owned property in St. George, talk with a few lenders to find out what kind of financing you might qualify for and whether it is the right fit for you.
What are the risks of buying a foreclosure in St. George?
In order to move forward with confidence in your purchase of a foreclosure, it is important to be aware of the risks with this type of transaction. Some of the potential challenges you might run into include:
- Underestimating the work required to repair or renovate the property, as they are generally sold "as-is."
- You may have limited information on the condition of the property, especially if you buy it at auction. There is the potential for some unpleasant, and expensive, surprises.
- Foreclosure properties may have outstanding liens or other encumbrances that can complicate the transfer of clear title. In some cases, buyers inherit financial obligations associated with these liens.
- Some foreclosed properties are still occupied by previous owners or tenants. Evicting occupants can be a legal and logistical challenge, and might delay your ability to take possession.
What are the potential benefits of buying a foreclosure or REO in St. George?
There are some obvious challenges and risks associated with buying a foreclosure in St. George, but they also represent the opportunity to make a great investment. If you have the financing and are up for the challenge, these are some of the benefits you might enjoy:
- The most obvious is probably the discounted price. Foreclosed properties are often sold at a discount compared to their market value, ready for some sweat equity to quickly make them into a great investment.
- Foreclosure sales can be quicker than traditional real estate transactions, especially if purchased at auction.
- While financing a foreclosure purchase may be a stressful thought to you, it actually might be better than a typical home purchase. Some lenders offer specialized financing options for foreclosed properties that might be a better fit for your needs, including renovation loans that allow buyers to finance both the purchase and necessary improvements.
