What Kinds of Problems Do REOs Have?
The problems with REOs are usually far less than for other repossessed property, but they do exist and can be severe on occasion. Frequently, the lender will pay for a policy of title insurance and will guarantee that your loan is indeed a first (no hidden liens) and that the title is clear.

TRAP

It’s up to you to investigate the property thoroughly, usually before you make your offer. Know what you’re buying. After the purchase you’re probably stuck with it.

This bypasses the REO department entirely, at least with regard to locat¬ing the properties. Remember that the foreclosure process involves adver¬tising the sale of the property and then holding a public auction. At that public auction, a price is paid and a deed is given, which is then recorded. All of this is public information, and if you have the time, you can go to the hall of records and dig it up. But there’s a better way.

That, of course, is the trick. With some lenders being so secretive about them, you won’t find REOs waiting for you to come along. In fact the most difficult part about this area can be finding the properties.

The most logical first step is to check with a lender. Go into your local bank branch and ask for their REO department. I tried that with five different banks. In four cases the people I talked with had no idea what I was talking about. In the fifth the person said that she knew and then connected me with their “real estate division.” It turned out to be a subsidiary of the bank that was a residen­tial real estate sales office. They didn’t handle REOs at all. It’s pretty hard to get information from the lender when the lender’s own people don’t know what’s going on!

High Interest Bank had an REO on its books. It was a three-bedroom, two-bathroom house in a fairly good area of town. High interest Bank was hop­ing in the worst way that it could get rid of that property. It wanted to convert it from a liability back into a mortgage that paid interest, in other words, it wanted someone to buy the property.

Banks could rent an REO and generate some income in that fashion. However, their expertise is in lending, not in prop­erty management. Besides, a rented house is harder to sell than a vacant one. As a result, they usually won’t do this unless the market is so bad that they can’t otherwise dispose of their REOs.

REOs are the most popular of the bargain opportunities in real estate. Here you might get a property for 5 to 50 percent off market value. Yet, they are usually considered a safer and easier way to buy real estate than purchasing either directly from the seller before a foreclosure auction or at the auction itself.

Buying an REO means getting it right from the lender. You usually get clear title and perhaps even title insurance. You may get a property that’s been refurbished. And if you’re careful, you can get one that’s way below market price.