Let’s Talk About REO Properties and Where to Find Them

Looking for an investment property or just a “deal” on your next home? With low inventory, home prices going utterly crazy, and the popularity of all of the fix-and-flip tv shows, many buyers are attracted to the idea of a bank owned or foreclosed home. But what does that mean? Are there any available? Can you even get them at a deal in this market? And what kind of financing do you need? Let’s get to work on your questions! First, some definitions….

Distressed Property – This term is used broadly in the industry can can mean a home on the brink of foreclosure or already owned by the bank (REO). The word distressed is in reference to the financial state – simply put, the borrower has fallen behind on the mortgage and the past due amounts, fees, and taxes are now piling up.

REO – Real Estate Owned (REO) properties are houses that have been seized by banks or other lenders from people who are unable to pay their mortgages. Banks foreclose on homes with unpaid mortgages and sell the properties at foreclosure auctions. If a home doesn’t sell at the foreclosure auction, it becomes an REO property. Buying an REO is a complex process. You will have to be a savvy negotiator to purchase real estate at a price you want.

Foreclosed Home – Foreclosure is a legal process that allows lenders to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property. The foreclosure process varies by state, but in general, lenders try to work with borrowers to get them caught up on payments and avoid foreclosure.

Short Sale – A short sale happens when a homeowner owes more on their home than it is worth – also known as being “underwater”. This was a very common scenario in the early 2000s market crash that resulted because of terrible lending practices and a huge decrease in property values. In a short sale, a buyer purchases the distressed property for less than what the current owner owes on the mortgage. This allows the current owner to avoid foreclosure, and short sales usually result in a good deal for home buyers and investors…assuming the bank agrees to the terms. Again, you’ll want an expert agent with short sale experience to guide you on this one!

HUD Home – HUD homes are properties owned by the U.S. Department of Housing and Urban Development. If a homeowner defaulted on a loan that was backed by the Federal Housing Administration (so, an FHA loan), the foreclosed-upon property is repossessed by the HUD instead of a bank. It should be noted that the HUD does not accept bids from the public. Each bid must be submitted by a licensed broker or agent, so be sure to find the right REALTOR ®️ (cough, cough👉🏼😁👈🏼) to assist you in this process.

Are there a lot of distressed properties available? There are lots of rumors and speculation on what will happen with the market since our economy is headed for an apparent recession. Rising interest rates, inflation, and all those borrowers who are behind from covid-19 seem to be making this seem like we are about to be hit with a swarm of bank owned properties. But, due to the change in lending practices after the 2008 crash and huge gains in equity, most home owners are not underwater. And bank owned inventory has dropped over the last 10 years dramatically. Banks don’t want to foreclose and tend to work with borrowers when they are behind. The number of distressed homes for sale in the Southeast Metro in the last 10 years is shown below!

Can I get a “deal” by buying a distressed property? Typically, even if the lender has an excess inventory of REO property, it will not offer a house at an unbelievably low price. In fact, In most cases, the lender and the real estate broker have researched market fluctuations and recent comparable sales to determine a fair price for the REO. As with any property, you might find a great deal, but don’t expect an REO property to be severely undervalued. Looking at ALL distressed properties in the Twin Cities and Southeast Metro over the last 10 years you can see from the chart below that since early 2021, the average distressed property has sold for OVER asking. Yes, thats right. Be prepared to go against multiple offers and ultimately pay an average of 2% over the asking price!

How can I buy a distressed property? Several ways and your agent can help.

If you want a home that’s already foreclosed on, vacant, and listed on the MLS, be prepared to compete with a large amount of cash investors the day it goes up for sale. These properties are likely sold as-is. They may have significant repairs needed and will not qualify for any financing except cash. The key is to have your financing ready and be prepared to move fast.

If you are looking for a short sale, this may be harder to come by. For starters, there are not many of them right now – everyone who owned a home gained so much equity in the last 2 years that even after paying an agent to sell their home they are walking with something in their pocket.

Lastly, lets look at some places I like to check for REO properties! Several federal agencies have properties to sell and I have several listed below!

A WORD OF CAUTION. There are a lot of SCAM websites that charge you money to look at homes or provide you with a list of foreclosed homes in your area, so be careful!

Set up a search with your agent. Seriously, it’s free and you will get automatic emails as soon as a distressed property is listed in the area and price range you are looking for. Many agents like me will check on and off market sites including the ones below. Message me directly with your email and information on location/price range/number of bedrooms etc to set yours up if you live in the Twin Cities / Southeast MN / Western WI.

HomePath by Fannie Mae – Homebuyers and community-minded organizations (public entities and some non-profits) can purchase newly listed Fannie Mae-owned properties (real estate owned) properties without competition from investors.

HomeSteps by Freddie Mac – HomeSteps currently uses online auctions through our business partnership with Auction.com . You must register with Auction.com  in advance to participate in upcoming auctions in specific locations across the country. Please visit Auction.com’s  website to find upcoming auction dates and properties.

HUD Homes – HUD sells both single family homes and multifamily properties.

VA Homes – These homes were VA loans that were defaulted. The site does require registration, but is free.

FDIC – Very limited inventory (for now) but things change. Check back from time to time!

IRS – Yes, “the” IRS does occasionally have properties they auction off. Limited search as well.

GSA – Federal Government Real Estate – From office buildings to single-family homes, the U.S. Government may have the property you need.

USDA – The USDA-RD/FSA Resales web site provides current information about single- and multi-family homes and farms and ranches for sale by the U.S. Federal Government. These previously owned properties are for sale by public auction or other method depending on the property.

Wells Fargo – Search Wells Fargo real estate owned properties

Bank of America – Foreclosures are real estate owned, REO or bank-owned properties and they have the potential to offer an affordable option to the right buyers. Bank of America can help you learn about home foreclosures with helpful tools, resources and mortgage products that can help make the process of buying a bank foreclosure an easier one. If you’re ready to shop for real estate owned properties for sale, explore the real estate owned listings from Bank of America.

Huntington Bank – REO Property Listings provides a complete list of Huntington Residential Bank-owned properties currently available for sale. Looking for a home or investment property? Expand your search to include bank-owned (REO) houses that Huntington acquires through foreclosures and other arrangements. Visit our REO Property List to see what homes are currently available.

Citi Bank – Buying a Citi owned property is a great way to get more for your money. Foreclosed or REO (Real Estate Owned) properties are typically priced below their actual market value and offer great incentive for homebuyers.

PNC Bank – Search for a property that fits your criteria

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