REO Properties (Foreclsoures)

With all the talk of Foreclosed homes in the news, I feel it is important to have a good understanding of what you are getting into when looking at Foreclosed homes.

I have been listing and selling REO properties for over 8 years and have closed over 300 transactions on just REO properties. I'd say I have a pretty good understanding of the differences between REO transactions and normal Real Estate transactions. Although there are plenty of similarities when buying a REO properties and normal Real Estate, it is the minor details involved in REO transactions that cause the frustrations for buyers and agents alike.

The first step is understanding the process. Foreclosure is the process that the lender takes to recover possession of a property when the borrower stops making payments. This process differs in many states. Indiana is a Judicial Foreclosure state. The lender has to file a motion of foreclosure in court to start the process of retrieving the home. This process can take some time and is one of the reasons some homes sit vacant for so long.

Once the Foreclosure moves through the courts and becomes official, the property reverts back to the lender and becomes a Real Estate Owned property (REO). So if your looking to buy foreclosed homes, you are actually looking to buy REO properties. I get so frustrated with the ads on the radio stating, "buy a foreclosure for $200 a month!", if only it were that simple. I'll tackle those yahoos at a later date.

Once it becomes REO, the lender starts the process of pre-marketing the property. This includes the process of clearing title, paying back taxes and establishing occupancy of the property. Many times an eviction may be necessary before the home is put on the market. In most cases the lender employs Real Estate agents like myself to help them with these steps.

Once the property is vacant, the lender usually asks for two opinions of value either from two different real estate brokers of from a broker and an appraisal. Based on these opinion of values, the lender will develop a marketing plan and set a price. In many cases, the lender will make repairs to the property prior to listing the home to help make it financable and to help stabilize neighborhood values. Let me repeat that- help stabilize neighborhood values. This is what most lenders are trying to do. They most likely own other loans in the neighborhood, so the last thing they want is to give the homes away and bring down values. Don't get me wrong, REO homes can be good deals, because the lender is looking to move them quickly, but if you expect to buy a REO property for $50,000 when other homes in the area are selling for $200,000, you'll be wasting your time.

I hope this helps clarify the process. Please check back in the coming weeks as I plan to break down the REO process in more detail and provide tips that will make buying a REO property easier and less stressful.