Could Now Be a Good Time to Buy an REO Property?

 Posted on August 28, 2020 in Real Estate

As the Chicago region begins to emerge from the lockdown caused by the COVID-19 pandemic, the housing market is flooded with prospective buyers looking to get a great deal on their next home. If you are searching for a new house, family members and friends may have suggested the possibility of buying a foreclosure property. A foreclosure property is real estate—in this case, a home—that is for sale by a lender because the current owner defaulted on the mortgage. Most defaults and foreclosures are caused by a failure to make the required payments.

A foreclosure sale is usually an auction, which means that it is possible to score a great deal, depending on the condition of the property. If a foreclosure property is put up for auction but not sold, the property reverts back to the bank and becomes a “real-estate owned” or REO property.

Why Auctions Fail

When a home is foreclosed on and seized by the bank, the home is typically sold in a public auction to the highest bidder. During a foreclosure auction, however, participating bidders do not have a chance to inspect or even see the home beforehand. In addition, the winning bidder is expected to pay cash on the spot or submit a certified check. While financing is sometimes available, most foreclosure auction sales are finalized immediately.

With all of these factors at play, not all foreclosure auctions are successful. A home that fails to sell at auction is still owned by the bank—which has already lost money as a result of the owner defaulting on the mortgage. The home is now REO, which could mean substantial opportunities for potential buyers.

REO Basics

The sale of an REO property is handled very much like a standard home transaction. Real estate brokers generally get involved, and the home is listed in “regular” real estate listings. Those interested in buying the home will get the chance to see the home and have inspections performed. Prospective buyers can also secure financing without worrying about trying to outbid everyone else at an auction.

You should remember that REO homes are nearly always sold “as is.” This means that you are allowed and encouraged to have inspections done, but the bank is not likely to cover the costs of any repairs. Your real estate agent and your attorney could persuade the bank to drop the price if the home requires extensive repairs, but do not expect it. With this in mind, you should consider including a contingency clause in your offer that will allow you to back out if the condition of the property is not up to your standards.

It is also a good idea to conduct a title search before you make an offer on an REO home. There may be liens against the property that will become your responsibility after the transaction is completed.  

Contact a Lake County Real Estate Lawyer 

As financial institutions and the real estate market, as a whole, start getting back to normal in the wake of the coronavirus crisis, banks are likely to be looking to move their REO properties as quickly as possible. This could mean great deals for you as a buyer. For assistance with buying an REO home, contact an experienced Libertyville real estate attorney at Newland & Newland, L.L.P. today. Call us at 847-549-0000 to schedule a free confidential consultation.

Sources:
https://www.forbes.com/sites/taramastroeni/2019/07/10/heres-what-you-need-to-know-before-buying-a-foreclosure/
https://www.fool.com/millionacres/real-estate-investing/reo-foreclosures/