How to buy a FORECLOSED Property aka REO
Posted by Pablo Lopez on
I’ve been listing and selling REO properties for many years, and I always got the same question from homebuyers. How can I buy an REO, is it any different than buying a regular arms-length “from the owner” property? The answer is that no there’s no difference you are actually buying from an owner this time a Bank and/or Investor. However the process and rules vary when you are buying and REO.
Before I get in to the steps lets understand the different stages and status of a distress property. Many buyers searching the internet hoping to find a deal come across these different stages of distress properties, but not all are on the market for sale.
- The first stage of foreclosure is LIS-Pendens;
- LIS-Pendens is a notice of default to a homeowner that has fallen behind in his/her payment. There are many things that could happen after the lis-pendens is filed with the court. For example and not limited too: The owner can bring payments current, the owner might have file bankruptcy, the owner might elect to sale as a short sale, we’ll talk more about short sales ahead. Properties that are in this stage might show up on many different websites as PRE-FORECLOSURE SALE most of the time a far cry from being available or on the market for sale.
- Second stage foreclosure notice in the event that the homeowner is unable to cure during the Lis-Pendens statue of limitations;
- Foreclosure notice is the foreclosure judgment filed with the superior court of New Jersey, giving public notice that the Lender,Investor, and/or servicer has an intent to foreclose on a specific real property for default of payment.
- Third stage an actual foreclosure byway of Sheriff Sale “auction”
- If the homeowner has not been able to cure the past-due balance owed to the mortgagee then a foreclosure might happen. Notice I said might happen! this is because there are many contingencies that could happen in between causing delays or completely stoping the foreclosure of real property.
- Fourth state is post foreclosure;
- Not out of the water yet, after the Sheriff Sale “auction” many things could happen and not limited too. Redemption by the owner, bankruptcy, loan mediation etc, etc.
- In the event that the property is successfully foreclosed at the auction, there might be other delays such as possession of the subject property. After a real property is foreclosed the new owner “the bank” can’t just walk-in and change the logs and sell. first they need to determine who lives in the property tenant or owner. In each case possession could be delay by 30-days and/or months.
Now that we have a better understanding of the process in layman language lets see how we can buy a foreclosed property after it becomes available and listed for sale by an REO agent/broker.
REO property are not only for cash investors or contractors, that’s right you can buy an REO and yes you can finance the purchase of an REO. Many REO properties won’t meet the minimum condition for an FHA 203b mortgage but there are other alternatives. Some mortgage companies offer RENO loans “renovation loans” for consumers like you looking to buy your dream home on a budget. Call me for more information regarding special financing availability from a qualified Mortgage Lender 973-955-2744.
Ok so you got approved “not pre-qualified” for a RENO loan, now you are ready to find your dream home. Once you find that dream home and you have a vision of what it can become after renovations is time to present your offer to the seller “the bank”. Once your offer is presented to the seller it might take 24-hrs for a response. We’ll skip the negotiation process to make the short short. Once your offer is accepted you will receive an acceptance addendum. The acceptance addendum is the game rules set by the seller not to be changed or negotiated before executed by all parties. One mistake I’ve seen from buyer over time is that once they receive the acceptance addendum and they run to an attorney for review “big mistake” this action can end up in cancellation of your offer. You will have time to soften the paying field during attorney review not before. Purchase addendum stipulates a few important issues and timelines like: days to close, sale is as-is-condition, buyer is responsible for all inspections, seller makes no representation of condition and makes no warranties, penalties if not close onetime etc.
So lets say your offer survives attorney review and you get in to contract, now you have an specify number of days to conduct all your inspections. Should you find something during inspections thats a deal breaker like a latent-defect ‘hidden defect condition not easily discoverable by simple inspection” you can safely walkaway and cancel the transaction if seller is not willing to cure the same.
After you have gone through the offer process, attorney review, inspection period, city inspections, permits and/or certificates now you can start the closing process and formal mortgage application. In most cases the seller will give you 45-days to meet all of your timelines, that is why it is best to be approved for the type of financing before your endeavor in to buying and REO.
Bottomline is that yes, you the average consumer homebuyer, can buy an REO. For more information and a complimentary personal consultation contact our office ALLIANCE Home Sales of New Jersey, LLC. 973-955-2744.
Information provided by:
Pablo Lopez, Broker-Owner
ALLIANCE Home Sales of New Jersey, LLC.
3-5 Village Square East Suite #3
Clifton, NJ 07011
Member of: NAR, PCBOR, GSMLS, NJMLS
Certifications: ABR, SFR, ePro, REO
Please be advise that every transaction is different and each transaction bring it own challenges, I/we make no representation and or warranties regarding the presented information. The shared information is based on personal experience as an REO Agent/broker.