An REO is a property that was foreclosed on by a lender and that the successful bidder of the mortgage foreclosure auction was the lender. Said another way, the lender now owns the property that they had lent money on.
These lenders have these REOs on their books and they need to get rid of them in order to maintain cash levels in the bank acceptable to the Federal Government. These cash requirements are being changed by the Feds in the hopes that banks will become more stabilized. Often you will see REO houses for sale by Fanny Mae or Freddy Mac. That’s because these 2 entities which are owned by the Feds have guaranteed these loans and they paid off the lender and now they own them.. REOs They have been around since loans have been made.
To buy REOs you can go to www.getreoproperties.com and simply search the areas that you want to buy in. You may have heard of “tapes” of houses being sold by lenders and various companies and individuals. A big word of caution; if you’re not getting deeds and title insurance at closing, then don’t buy. There are a lot of companies and individuals that are hawking these tapes on the internet and you could end up losing your money.
The first question to ask anyone selling tapes of properties or even an individual house is this: “How do you control the property?” This answer, if answered honestly, should let you know if you want to move forward.
Control can be one of the following:
- they own it
- they have it under contract
If they own it, there should be a deed to prove it and you’ll want to know who is on the deed. If they have it under contract or have an option to purchase, they should be able to show you the documentation.
Some sellers won’t want you to know what their making and if this becomes their issue for not wanting to prove they have control just tell them, “I don’t care if you’re making $100,000 on this deal, I only care if I can make money.” And you know what? That’s all you should care about. There is money to be made in REOs, just don’t give down payments to sellers that you don’t know. Always go through an attorney or a title company.
