What Is REO Property Real Estate?
If a homeowner defaults on his mortgage payments, the bank has the right to foreclose on the property and take over ownership. The bank then attempts to sell the property at an auction. In some cases, the property does not sell and then becomes Real Estate Owned (REO).
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Types
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There are two types of REO properties in the United States: Bank REO properties and Department of Housing and Urban Development (HUD) REO properties. Properties that fall under the Bank REO category are owned and sold by the bank that held the original mortgage. HUD REO properties result from the Federal Housing Administration (FHA) paying the lender for a foreclosed property that was financed with an FHA-backed mortgage. The ownership of the property is then transferred to HUD to be resold.
Advantages
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Purchasing an REO property from either a bank or HUD can provide prospective buyers with a lower selling price than traditional homes. REO properties also allow buyers to work directly with the bank that is interested in selling the home instead of with owners that have an emotional attachment to the property. REO homes can also be a good investment property for those who are looking to be a landlord or to remodel the property and sell it for a profit.
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Disadvantages
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Due to the lower price of REO homes, prospective buyers may find themselves in a bidding war with other buyers and may end up paying more than the property is worth. Homes may also be in need of extensive repairs, which can make the transaction cost more in the end. REO properties are generally sold as is, with the possibility of no inspections unless specified in the original offer. The bank also has the option to refuse to do any repairs that are needed or to give the buyer a credit on the asking price.
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