Educate me on buying an REO house

We were planning to buy a house in 2013 but a property close to where we live now has come up for sale at a decent price and so far it seems to tick all the boxes[1]. Actually the main house is a little bigger than we'd want but it's got a sensible layout, which is something that seems to be missing from a lot of places around here.

My main concern is that it's seems to be an REO and for some odd reason I'm not overly keen on those, partially because of the additional hassle (I'm walking if the lender is BoA) and partially because I'd be concerned about potential chain of title issues, but for the latter we can probably hire an attorney - sis in law is good at sniffing out real estate related issues, but she's not in state...

[1] some land around it, four car garage with on that's an RV garage so it can accommodate a lift, plus it's got trees for privacy which a lot of properties don't. Oh, and it's got a house on it with bedrooms 'n' stuff but we don't care about that, right?

REO is no problem as bank has foreclosed and is now ready to sell the property - check on condition extra carefully as seller is prob exempt from any and all property disclosures. Why would you walk if B of A owns the place? Do you have title insurance in your state?

BoA has a wonderful reputation at least when it comes to short sales (ie, they'll hopefully get back to you this century) and I'll have to verify if that applies to REOs as well. Plus that would potentially mean dealing with some leftover of Countrywide which would mean to be extra-extra-extra careful.

We're not in a massive hurry as we don't have to move (and I'd like to pile up a bigger deposit anyway), but OTOH I don't want a potential deal blocking other deals.

Yes, there is title insurance out here in NV but given that there are known iffy foreclosures out here I wouldn't want to rely on title insurance alone.

I had to google REO. If the title work passes muster I have no problem with it. This is how we bought our daughters house.

Been dealing with REO stuff as I house hunt. There is one thing to beware of: there are some banks out there going with an auction format through a third party. I got sniped by $750 with one minute to go. Ask some questions about that before making any sort of offer.

They can't sell the house unless there is clear title and if there isn't they have to disclose it during the sale process. If there's any issues like that, back out immediately, do not get involved. FWIW, it is possible for a credit card company to also foreclose on a house!

B of A short sales - I agree that I probably wouldn't want to be involved with due to the uncertain outcome and (potential) months of waiting around. REO is another matter altogether. You will be dealing with a professional asset manager with whomever owns the place now and should have a decent experience, especially if represented by a real estate agent familiar with REO transactions.

There is a difference between short sale and REO. Short sale = owner quite often still in the house, they cut a deal with the bank which may include them still being on the hook for the difference between the sale price and the mortgage balance. You make a low offer, it touches off a war between the bank and the owner. Takes for dammit ever.

REO = the house has been vacant for a while, the bank has done their due diligence and they now are ready to unload it. Much simpler. But they will usually need some repair, the PO left pissed and the bank doesn't want to be in the real estate business so it sits with no repairs/maint. In some cases it can sit for 2-3 years. One REO I am looking at has shrubbery that's grown up taller than the windows.

I should have pointed out that I'm aware of the basic differences between REO and short sale, but might have been under the misapprehension that you get to deal with the same department for both and that this would take forever.

The house certainly looks vacant (as mentioned, I haven't been able to verify that it's an REO yet but I'm about 99% sure it is) and one of my concerns is the lack of maintenance - out where the house is (and the one we're currently renting), it's all wells and septic systems. The last thing we need is a complete overhaul of either. OTOH the water rates in town have a bad case of HFM? so I'd be happy with a well. Only that I'd put on some better filters than we have at the current house .

Have you Googled the address? Lots of times that will point you to pages that will give you something of a clue what part of the process it's in and even better what bank.

Other places you might check: Homepath.com is Fannie Mae's page, they are carrying a lot of inventory. You might check trulia.com and RealtyTrac. Trulia is free but has only basic info like whether it's lis pendens etc, RealtyTrac has more information available, they want $49.95 on a CC to start but they will refund it within seven days.

Many REOs are sold on a bid process and the person offering the most gets it, but even if it's not a bid process you are buying it as-is, where-is and that means that anything that happens between the time you contract and close you just have to live with it which is totally unlike buying from an individual.

If someone steals the copper - it's still yours.

If someone steals the AC - it' still yours.

If kids break in and build a bonfire in the middle of the living room-it's still yours.

If all the windows are broken out and the house is flooded from the rains - it still yours.

If a dead body is discovered in the green and cruddy pool - it's still yours.

If the foundation cracks because no one is watering it - it's still yours.

If the water lines or sewer lines break due to soil shifting due to no one maintaining the property or watering anything - it' still yours.

I could go on and on with actual real life things I have seen with REOs.

Unless you are in an area where REOs are more of a norm due to the market you'd much rather buy a home from a Seller where you can tell how it's maintained and where they have liability after the sale.

Also unless you are in an area where REOs are more of a norm due to the market, you have to ask yourself why was it foreclosed upon in the first place. In 38 years in the business the number of times I've seen a foreclosure where it was a people problem rather than a property problem I could count on one hand.

They are usually corner lots (more crime and noise), on a busy street, or back up to a high tension power line, shopping center, school or are near apts. In other words the least desirable locations.

They also typically are in need of high dollar repairs such as roofs or foundations.

Remember that one day you will have to sell that house and you want to be sure that the problems that caused the house to be foreclosed upon in the first place won't hinder your sale.

My preference would also be to purchase a home directly from a seller/owner rather than a bank for pretty much all the reasons listed above.

However one thing that tends to get in the way out here is that I live in Northern NV and it seems that they're trying to prove they can out-foreclose Las Vegas . The other part of it is that the town we currently live in has a fair number of retirees coming over from CA due to the lower taxes but there aren't many jobs so once you went through what was left of your 401k after the stockmarket went bust, you pretty much had no choice to but to up sticks, either before or after the bank kicked you out. To put it mildly, unless you want a minimum wage job the economy isn't so hot. You'd think that would work in our favor as I earn a little more than minimum wage but house prices here in this county are still pretty high.

The bit about "it's just burned to the ground, tough, you still own it" kinda scares me though.

I guess we'll have a look at it on the weekend, I'll go quiz the realtor then but it looks like unless it's the only way to get a house we'll probably give that one a miss.

Then have your insurance in place before closing. At least you can guard yourself against things they cover, of course that won't help with preexisting stolen copper pipe, etc.

Yeah LV leads the country in foreclosures by a long shot. The foreclosure rate was up something like 190% this year.

The issue there is buying a home in a neighborhood that will even be standing in a few years.

Back in the early 70's there was an FHA 235 program. Billboards advertised $99 move in costs and $99 a month payments.

People, I was one of them, bought all they could build. Unfortunately in a few years there were whole neighborhoods vacant. At one time my house was one of 3 occupied homes of over 400 in the neighborhood.

People just didn't understand anything about home ownership and because it was cheaper to buy one of these than get in an apartment, people just moved when they were ready to. I traded my house for a washer and a refrigerator but forgot to close on the loan. I had no idea how the whole system worked. I ended up with a foreclosure due to that.

I watched bulldozers tear thru a neighborhood of over 300 homes that were being torn down due to the drugs and crimes. The whole neighborhood was boarded up.

So if you're buying in LV you need to worry about this scenario. As I understand it there are a lot more houses there than there are people who actually live there.

I'm actually up near Reno, not LV, but the situation isn't much better up here. The way I'm looking at it is that if we can find something that has good potential as a rental property, that might be the way forward for the simple reason that if we have to move for my work, renting it might be a reasonable fallback.

Got confirmation that the house is an REO so I'll be extra careful looking it over. Unfortunately it looks like most of the interesting properties (ie, on a bit of land with more than a single car garage) are either way overpriced or REOs.

Nevada is like SoCal - REO and short sale properties make up a huge portion of the market. Now that you know you are looking at an REO, a little extra dilligence is needed but I certainly wouldn't run for the hills. Things need not be as dire as Carguy123 predicts.

Might be worth it to check with a realtor. They often have info or can check it out.

monark192 wrote: Things need not be as dire as Carguy123 predicts.

Ahhh, but they are as dire and have been since the 1970s for the vast majority of the nation. There are always exceptions to the rule, but keep in mind those are exceptions and must be approached very gingerly.

In areas where REOs are a large part of the market it should make you especially careful about WHERE you buy and WHEN you buy. You could still get hit with property value drops. In those markets, unless you just get extremely lucky about your choice, you typically want to wait until the market turns so that you can make a good choice about properties.

Getting rid of a home isn't like getting rid of a car plus the potential for loss (& profit) is much greater. REOs have always been homes you look at more carefully than owner owned homes. There's a reason it was foreclosed upon.

Was it the buyer or was it something else? Usually if it was a buyer situation they'd have sold the house. If they couldn't sell it then you need to be asking WHY? Will that self same issue come back to haunt you too?

If the problem isn't just house related but instead is part of a larger problem (like now) then you have to be even more careful that you don't get sucked into the same quagmire. That's why you wait and miss bottom - for the safety factor.

If you have loads of money to burn and are paying cash, so that a foreclosure ruins your credit as well as sucking your money dry, they buy lots of homes. The odds are that if you scatter those purchases around you can come out on top - given enough time.

But if you are Joe Blow putting all your eggs in one basket then you need to do a lot more due diligence because it has the potential to put you into bankruptcy and ruin your life.

Owning the right home is a wonderful thing. Owning the wrong home can literally ruin your life for decades.

And with an REO you already have proof there's something wrong so you have to be more careful than with any other type of purchase. The fact the house is an REO ought to have something in the back of your head screaming "DANGER! Danger, Will Robinson!"

That is not to say all REOs should never be bought, only that you must approach them with much more caution than other types of sales and with full understanding of the differences in the purchase process (as-is, where-is) plus keep in mind they take much longer to complete. When there are other options the REO is at the bottom of the purchase list, right down there with double wides and condos.

Carguy123 - what part of the country are you in?

I get what you are saying but in SoCal, the best homes in the best neighborhoods have also been foreclosed - not just the windowless houses in the crack filled neighborhoods with bodies and powerlines in the back yard. Around here, REO properties are a sought after section of the market as buyers try to avoid getting wrapped up in the short sale debacle.

As long as you have sought after neighborhoods that aren't predominately foreclosures then you have a strong (ish) market for being a homeowner. But you still have to be extra careful.

As I've said, the large numbers of foreclosures are not the norm, but in markets where they are, and right now there are several like that, you just need to understand the risks in buying one and the differences in the purchase process. You don't have nearly the safeguards with an REO that you do with an owner occupied property and you have even less if the lender is having to furnish (requiring you to use) their own financing. That says that something about the house or the area is so bad that regular lenders can't do the financing.

Then is when you politely demure and look for another home/area.

Very little of the country has (ever had) an REO problem outside the great depression.

I guess it can happen anywhere. The n'hood I'm living in right now has 4 REO's, one was at 1/2 market value. And this is not a thrashed out n'hood by any means. Two others I was looking at are in a very nice upscale planned 'town' a short drive away, that planned town has houses ranging from the middle $130's to the $800,000 range. Both were well below market value and had 2 car garages. I didn't buy one because I changed my search focus due to school redistricting out here (it's a long story, I wish I'd known about that two years ago), the other district I'm looking in has REO's ranging from the $50's to $300K, some in very nice neighborhoods. Just like anything, due diligence pays off.

I had to Google the term REO too, I mistakenly just thought of all those type things as "foreclosures". Our current house would fit the definition of REO. When we bought it, the bank owned it.

From our experience, I would agree with what Carguy123 said about being ultra cautious. But if you do your homework and really investigate, you can get a real bargain.

Our house has a well and septic too. I'll never forget the date we first saw the house, because it was the day after Christmas (I found the listing Christmas Eve day...our agent was awesome). At that time, it had been vacant for about a year. The bank was doing the basics to keep the property from sustaining major damage, but not much more. Heat off, electric off, most of the lawn unmowed, etc...

We were allowed to walk through the house, but we basically had to take a leap of faith and buy it "as is". The bank really didn't want to be on the hook for any repairs. IIRC, they were willing to do a couple minor things, but that was it. But we did as much homework as we could. The house was only 3 years old at the time, so it was still pretty new. We had an inspector look at it, and even ran through a whole bunch of "what if" scenarios as far as things that could possibly be wrong. Obviously, we can't predict every possible "what if", but we went over the most likely scenarios. We took the leap and it's been wonderful. We bought it for a fraction of it's original selling price. The house was in remarkably good condition. Most of what we've done has been a lot of cosmetics...we've been in the house almost 3 years now and are still trying to get the yard in good shape.

So I'd say that with due diligence, you can make it really work to your advantage.

Well, this house is approx 20 years old. One of my big concerns is the plumbing (got screwed on that in the last house, not going to happen again) as nighttime temps out here hover around 10-15F and I'd be very surprised if they left the heat on at least at a minimum level.

We'll have a very good look at that house and see what transpires. And I'll make sure to check for dead bodies in the jacuzzi .

Well, that was "interesting". The realtor who should the house to us (who wasn't the listing agent) asked us if we'd already peeked in the windows as he said "the house looks a lot better from the outside".

Boy was he right. That thing had moneypit written all over it (and the seventies want their wallpaper back). It had all the trimmings - weird modifications (one of the garages had been walled off internally with just about enough space for a motorcycle left, the rest had been turned into a workshop, insulation in the RV garage that only went halfway up the walls), a chicken coop full of chicken E36 M3, holes in the drywall and what looks like a damp problem (seriously? In the desert?) with 'blooming' drywall and the wallpaper coming off the walls. Good location, though.

If that house had been a horse, it would've been shot years ago.

Oh well, next foreclosure to be viewed on Friday. A little remote unfortunately, but 10 acres with a decent size house is nothing to be sneered at, although I have the suspicion that that property requires ownership of a snowblower.

BoxheadTim wrote: Well, this house is approx 20 years old. One of my big concerns is the plumbing (got screwed on that in the last house, not going to happen again) as nighttime temps out here hover around 10-15F and I'd be very surprised if they left the heat on at least at a minimum level.

When we bought our daughter's house, the bank had paid someone to winterize the house. They out stickers on the windows in prominent places.

Yes, the house was winterized. Pretty much the only bonus point amongst all the negatives .