Understanding REO Homes

When someone mentions the term "REO homes" they are referring to real estate owned homes that are usually in the hands of the financial institutions that made the initial loans for their purchase. Usually there are no longer any mortgages on the properties because they have been reclaimed by the bank or mortgage company. For example, a family that took a mortgage from a local bank and then defaulted on that loan, thereby forcing the bank to foreclose, may be living in an REO property.

As anyone in the modern economy will know, there are an ever increasing number of REO homes because of the fallout from the collapse of the subprime market and the resulting global financial woes. Many people automatically assume that this means the market is ripe with ridiculously low-priced properties and ample opportunities to get homes at bargain-basement prices. While there may be a few examples of such incidences, the reality is that banks and institutions with ownership of such homes are all looking to obtain the market value prices for them. They don't tend to view their REO homes as liabilities, and this is something that anyone setting out to purchase one should accept.

Does this mean that someone looking for a reasonably-priced home won't be able to get themselves a very good deal? No, it just means that the best approach to the entire process is one that is realistic and well-prepared.

Consider first that most REO homes will be sold in the "as is" status. This is because the financial institution may have been entirely unable to manage the maintenance and upkeep of the property throughout the foreclosure process. Usually the owner will have made arrangements to pay someone to check in on the home and ensure that the most basic care was provided.

When you approach the bank or title holder on the home to begin the process of making the purchase, you may be unable to receive any sort of land survey, pest reports, inspections or other information that can give you an accurate understanding of the home's current condition. This is information that will have to be obtained via professional inspections or reporting agencies.

In addition to a willingness to buy the home "as is" and to pay for any inspections of REO homes on an out of pocket basis, the potential buyer is also going to have to be willing to accept the terms of the lender. For example, many properties that are in the REO status will be difficult to finance and may have to be a cash-only sale. Alternately, the property owner may ask for formal documentation indicating that financing has been arranged before they enter any farther into negotiations.

In addition to financing terms, the owner of the property might also need a much lengthier period of time to make their decisions and see the process through to completion. This is due to the sad fact that more than half a million homes in the United States alone were in the foreclosure process during the year 2009. This means that the divisions within the banks and mortgage companies assigned the task of managing REO homes are also juggling hundreds or thousands of ongoing foreclosure issues as well.

Sean Safholm, CalPERS Direct Lender calstatelender.com calstatelender.com

For calstatelender.com CalPERS Loans, please visit our site