How do I buy REO properties?

5 Replies

I am interested in buying REO's probably for flips. I am seeking clarification on the process of how a property becomes REO. A bank, private lender, or government forecloses on someone for nonpayment. Then, the property becomes the possession of the county that it's in and the county auctions it off. Generally, the lender will buy back their property at the county auction so they don't lose their investment.

Then, the lender auctions it off again at a private auction? Or do they sell it through traditional channels like the MLS or FSBO?

What are the most common ways that I could buy REO's? Both from banks and from Freddie Mac and Fannie Mae. Is there such a thing as FHA REO's? Or even USDA?

@Patrick Philip

REOs are bank owned properties. They'll be listed on the MLS like any other house.

Fannie Mae homes will be listed on the MLS but bids go through their website Homepath.com

HUD will also list their homes on the MLS, but bids go through their website Hudhomestore.com

To purchase any of these, you go through an agent on Realtor.com or Zillow.com like any other house.

HUD and Fannie Mae will often require an initial bidding period for owner occupants only and then open up bidding for investors.

In some parts of the country, Fannie Mae homes tend to be occupied when you buy them. So, that's a consideration. Each listing will say if it's an occupied home or not.

Originally posted by @Patrick Philip :

I am interested in buying REO's probably for flips. I am seeking clarification on the process of how a property becomes REO. A bank, private lender, or government forecloses on someone for nonpayment. Then, the property becomes the possession of the county that it's in and the county auctions it off. Generally, the lender will buy back their property at the county auction so they don't lose their investment.

Then, the lender auctions it off again at a private auction? Or do they sell it through traditional channels like the MLS or FSBO?

What are the most common ways that I could buy REO's? Both from banks and from Freddie Mac and Fannie Mae. Is there such a thing as FHA REO's? Or even USDA?

The county never takes possession or ownership of the property. 

In jurisdictions where judicial foreclosure is required, county courts are the mechanism used by the lender to foreclose on the property. Sometimes the property sells to a third party high bidder at the foreclosure auction. Sometimes the foreclosing lender is the high bidder... and when that occurs the property becomes an REO.

REOs are most often sold through real estate brokers, usually through the MLS but sometimes using the auction method.

@Patrick Philip you can go onto most bank websites. It isn't always easy to find, but they will list REO property for sale on the website. The problem I have run into is that these people know banking, but they are really dumb when it comes to real estate. You call them to buy a property and they act like they don't even know they own it. Maybe you will have better luck.

Originally posted by @Tom Gimer :
Originally posted by @Patrick Philip:

I am interested in buying REO's probably for flips. I am seeking clarification on the process of how a property becomes REO. A bank, private lender, or government forecloses on someone for nonpayment. Then, the property becomes the possession of the county that it's in and the county auctions it off. Generally, the lender will buy back their property at the county auction so they don't lose their investment.

Then, the lender auctions it off again at a private auction? Or do they sell it through traditional channels like the MLS or FSBO?

What are the most common ways that I could buy REO's? Both from banks and from Freddie Mac and Fannie Mae. Is there such a thing as FHA REO's? Or even USDA?

The county never takes possession or ownership of the property. 

In jurisdictions where judicial foreclosure is required, county courts are the mechanism used by the lender to foreclose on the property. Sometimes the property sells to a third party high bidder at the foreclosure auction. Sometimes the foreclosing lender is the high bidder... and when that occurs the property becomes an REO.

REOs are most often sold through real estate brokers, usually through the MLS but sometimes using the auction method.

 If the county never takes possession, then why must the lender show up to bid? What if they didn't show up? Does the check get made out to the county at the auction or to the lender?

The lender doesn’t show up. They bid by proxy (often bids are made by the auctioneer on the lender’s behalf). 

Lenders do this to protect their interest. They don’t want the property sold for a low amount at foreclosure when it can be retailed later for more money. Foreclosing also wipes out junior liens such as 2nd trusts and judgments. 

The only money typically paid at the auction itself is a large cash deposit by the buyer to the auctioneer/trustee. 

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