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Foreclosure vs. REO (Real Estate Owned) property

Foreclosure vs. REO (Real Estate Owned) property

This question comes up quite often these days – “What is the difference between a foreclosure property and REO (real estate owned)?

A foreclosure is a legal process in which, against the wishes of the owner, real property is sold to satisfy a public or private debt for which the real property has been pledged as security.

Real Estate Owned (REO) is real property that has been foreclosed by a lender and is now owned by the lender.

There’s a lot of confusion between a foreclosure and REOs.  When real estate buyers call me asking about foreclosures in most instances, they are really inquiring about REOs and here’s why?

  • A foreclosure property goes through a foreclosure auction which is usually held on an assigned date on the steps of a local court house.
  • Foreclosure property buyers need to be able to purchase the property for ALL CASH.
  • Foreclosure property buyers inherit all unpaid liens, including mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage.

On the other hand, an REO property is:

  • REO property is already owned by the bank.
  • Home buyers are able to get a regular mortgage or loan on that property.  All cash is not needed.
  • REO properties in most instances come with clear title.

Five things to look for when purchasing REO or already foreclosed homes:

  1. Work with your Pasadena realtor and the Title Company representative to ensure that the title to the Pasadena home you’re buying is free and clear.
  2. Understand that most foreclosures occur in a down-trending marketFactor in falling home prices into your purchase offer.  Look at the current local market conditions and historical trends prior to submitting your offer to the bank.
  3. Banks do NOT provide many disclosures, so be prepared for surprises.  Ensure that all home inspections are completed – don’t forget a sewer line inspection – prior to close of escrow.
  4. Look for neighborhoods that are not overrun with foreclosures.  Neighborhoods with many foreclosures might offer better prices, but will take a lot longer to turn around and the home prices will continue to depreciate.
  5. If you are looking to buy an already foreclosed property as an investment, be aware that lenders charge higher interest rates on 2nd homes and investment property.  Speak to a lender and get fully approved prior to making an offer.

Below is a list of REOs or already foreclosed homes in San Gabriel Valley including Pasadena and surrounding cities:

Interested in discussing if a foreclosed home is right for you?  Give me a call at 626-627-7107.

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Posted on December 16th, 2008
Posted by: Irina Netchaev

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