Making an offer on REO property or a foreclosure in New York?

What's an REO?

"REO" or Real Estate Owned are homes which have been through foreclosure that the bank or mortgage company presently owns. This differs from real estate up for foreclosure auction.

When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees amassed during the foreclosure process. The buyer must also be ready to pay with cash in hand. And on top of all that, you'll accept the property completely as is. That possibly could comprise of prevailing liens and even current denizens that may require expulsion.

A bank-owned property, by contrast, is a more tidy and attractive transaction. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The bank will deal with the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.

Take notice that REOs may be exempt from standard disclosure requirements. For instance, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to reveal any defects they are knowledgeable of. By hiring Nelson's List, you can rest assured knowing all parties are fulfilling New York state disclosure requirements.

Are REO properties a bargain in New York?

It is frequently presumed that any foreclosure must be a bargain and an opportunity for guaranteed profit. This isn't necessarily the case. You have to be very careful about buying a REO if your intent is to make money. Even though the bank is often eager to offload it quickly, they are also motivated to minimize any losses.

When contemplating what to pay for REO property, carefully analyze comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying and selling foreclosures. But, there are also many REOs that are not good buys and may lose money.

Ready to make an offer?

Most mortgage companies have staff dedicated to REO that you'll work with when buying REO property from them. To get their properties advertised on the local MLS, the lender will usually use a listing agent.

Before making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about their knowledge regarding the condition of the property and what their process is for taking offers. Since banks typically sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unknown damage and terminate the offer if you find it. As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender.

Once you've submitted your offer, it's customary for the bank to make a counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Your deal could be final in a single day, but that's rare. Since offers and counter offers usually allow a day or more for the other party to respond (and employees at a bank don't work nights or weekends) you could be looking at a week or longer.