REO's What are they and why does everybody seem to be talking about them lately? Well, for one thing, the market seems to be flooded with them. Almost everybody today knows of someone who has recently lost their home to foreclosure in today’s tough economic times. Foreclosures go through a lengthy process and most of those homes end up being REO’s. They are almost always sold at or below current market value despite what were owed on them, making most of them good deals in today’s market. So what does REO stand for? REO stands for Real Estate Owned and basically means that a bank, lender or financial institution now owns and has legal title of a property. The state of New Hampshire is a lien theory state which means the borrower (the mortgagor) retains both legal and equitable title. The lender (the mortgagee) simply has a lien on the property as security for the mortgage debt. So when a property owner defaults on their mortgage agreement and the lender is forced to start the foreclosure process, the homeowner will have a short period of time to cure the default and stop the foreclosure. If the homeowner does not cure the default in a set amount of time, the property will then go to a Trustee Sale (auction) in an attempt for the lender recoup their loss. If a property sells at auction to a member of the public or junior lien holder who has an interest, they most likely will be responsible for paying an amount equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. Since the amount of all these are most likely more than the property is worth, most properties don’t sell at these auctions. If the property isn’t sold to a member of the public or any junior lien holders and there are no bids higher than the opening bid which is usually set at the total amount owed, the property will be purchased by the trustee or attorney conducting the sale for the lender. The lender would now have legal title to the property and all junior lien holders would then be wiped out. Any property taxes that are owed would be paid and the property could be sold with a clean title on the open market as an REO for whatever amount the lender chooses. Since the lender is most likely not in the real estate business, they would probably will try to liquidate the asset as soon as possible and minimize their loss. That means that they need these properties to sell and the sooner the better. Since there is no shortage of homes for sale on the market, they most likely will have a couple of BPO’s (Broker Price Opinion) done on the property and price it at or just below whatever the current market value is. Some REO’s can be very good buys for investors or even first time home buyers but many will need a great deal of work before they are livable. Many of these homes have been left empty for some time as they went through the foreclosure process and there will be many unknown factors. Since the lender who is now the property owner has never lived in the property, they will have little to no knowledge of its condition and will not offer any guarantees. These properties are sold as is and the purchaser will most likely need to sign a real estate purchase addendum stating that they understand this. These purchase addendums can be up to 20 pages and cover everything the purchaser will not hold the seller responsible for, such as: 1) Physical condition a) Its structural integrity b) Quality of materials c) Quality of water d) Quality of soil e) Susceptibility to landslide or flooding f) Water leaks and damage g) Mold 2) The conformity of the property or of the improvements to any a) Zoning b) Land use c) Building code requirements d) Compliance with laws & regulations 3) Particular purpose of a property a) Habitability b) Merchantability c) Marketability d) Profitability e) Non apparent or latent defects And more, so it is truly “Caveat Emptor” let the buyer beware! There is no secret or master list for these properties and they’re not difficult to purchase. You just need to know where to look to find them and a good real estate agent who understands the proper procedure for buying them. II've completed over 440 BPO’s in 2008 and have experience in listing and buying REO homes. If REO’s interest you and you would like to have help finding and buying these homes, please give me a call today at (603) 610-8595 or (603) 755-1229 and I would be more than happy to assist you. Paul Martin GRI e-PRO Realtor 
|