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Foil · May 14, 2013, 08:00 PM

What is an reo home and what are the risks in buying one?

LisaB4657 · May 14, 2013, 08:13 PM

An REO home is a property that is owned by a bank following a foreclosure, or when a homeowner gives the lender a deed in lieu of foreclosure.

Some of the risks involved in buying an REO home are:

1. The lender/seller will usually not take responsibility for the condition of the home and will probably not make any repairs;

2. The lender/seller may not offer clear title and the buyer will probably have to take on the responsibility of clearing up any title issues in order to get clear title; and

3. The contract process with a lender/seller can be very drawn out. They are unlikely to be willing to negotiate any of the contract provisions and it can take a very long time for the paperwork to go through the channels within the bank to get the contract approved and signed.

There can be some great bargains to be had when buying REO homes but if you're in any kind of hurry, forget it. Also, be prepared to take the property "as is" despite whatever a home inspection might turn up.

Foil · May 14, 2013, 08:33 PM

Thank you for your answer. What is a 'clear title' ? And would an REO home be offered for significantly less than it's estimated value? (homes on the street that are not for sale range in value from $80k-$120k but this home is offered at $44k. )

LisaB4657 · May 14, 2013, 08:43 PM

Clear title means that no one else has a claim to ownership of the property. If the title isn't clear then you might not be able to buy a title insurance property and someone could come along and make a claim for ownership after you've already bought it.

An REO home could be offered for significantly less than market value, especially if the home is in disrepair or if the title is not clear.

If you're considering buying, make sure that you have an inspection done so you know what kind of damages you'll have to repair and also make sure that you have a title search done and that a title company will insure the title. If you don't buy a title insurance policy at the same time that you purchase you could lose everything.