What About Buying REO's After The Foreclosure Is Complete?

The process of buying properties that have been through the foreclosure process can occur in a couple of ways. First, the home can be sold at the foreclosure auction with the buyer being someone other than the original lender. Secondly, if there are no bidders at the auction, the lender will get the home back as the high bidder for $100 over the amount of the final judgment in the court action.

If an individual purchases the property at auction he will be buying a property that may have major deficiencies with its title, structural issues, property taxes due, illegal structures on the property, un-permitted work, or other issues that can cause the bidder to be sorry later he bought the home. If you intend to bid on a foreclosure property at auction, I suggest you try and see inside the property before the sale. This is not to imply that breaking and entering is the answer, but rather by contacting the homeowner and asking to buy the property from him, would be a better alternative. If he has moved away, try getting permission from the homeowner if you can track him down and go inside with some type of permission letter in your pocket in case the police are called.

You can also do your homework in the public records or get an attorney to do it for you. In fact, an attorney can do a complete and through title search in a matter of minutes or days. He can also do an open permit and code violation search in about a week depending on your local city or county's code enforcement department. Some cities will take time to do it if you come in and others will make you pay and wait for 30 days or more. While this is being done, you should have a home inspector do an inspection if he can get inside the property, if not have him do a visual from the exterior to see if he notices any structural issues.

The second way to buy a home that has been through foreclosure is to buy an REO. An REO is a "Real Estate Owned" property that has been through the foreclosure process, and has been purchased at the foreclosure auction by the lender. Often the lender is forced to take a property to the auction to eliminate or "extinguish" junior liens against the property, otherwise the lender would have to assume the responsibility off paying of these junior liens if the homeowner gave the lender a "Deed in Lieu of Foreclosure" and walked away.

The huge difference in the lender getting the REO and reselling it is that he must bring any delinquent property taxes current for the buyer. He must also provide "fee simple" or "free-and-clear" title to the buyer. The process of clearing title deficiencies can sometimes be very expensive so buying REO's eliminates these related issues. However, clear title does not mean the property is free of deficiencies and that the buyer will have to contend with them himself. These include boundary disputes, structural damage, vandalism, missing appliances or possibly even the premises being stripped of all metal, as well as other problems that are excluded from the title policy. This is why the home inspection is so very important to determine what a buyer should expect to have as problems when he gets title to the property.

So buying an REO is generally much better than buying a property at the foreclosure auction. There are exceptions but the buyer must beware that hidden or unanticipated issues can make the "cheap" purchase more expensive than a new home. So as always, do your homework and "buyer beware".

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