What exactly is a REO house?

Question

Hey guys!

So here's the deal. I noticed a house recently in a good area that was vacant and had been so for quite some time. I found out the owner was some kind of bank/government financing agency, and that the house was a REO. Supposedly, it went into foreclosure, then went through a sheriff's sale, and now is being sold by this agency.  I reached out them (took me a week of phone calls to find the right person!) and finally got ahold of the right one. We scheduled a visit to the house, and decided we wanted to put an offer in on it. We went in with an all cash offer of $35,200 and, to our delight, the offer was accepted.

It is a 3bed/2.5 bath with a partially finished basement. Probably would sell for around $120,000 if flipped right. This property is in a B area, around $1,200/month including a few utilities. It sold in 2007 for $99,000. In 2004, for $38,000.   It needs some work but it's mostly cosmetic, figuring on the high end around $15,000 in work, max.

I have never purchased a REO property before this.  It states that the agency purchased the home for $984, how is this possible? Can someone shed some light on REO properties and how this could be?  Seems to be a slam dunk, hoping I'm not missing some vital piece of info here.

Account Closed · Answer

Clear title is the unknown. Always be watching for 2nd mortgages, mechanics liens, bankruptcies, back taxes, unpaid utilities, cloudy easements, mysterious heirs, etc. Sometimes there's a stumbling block before getting that deed in your hands. Best of luck with this investment.

Brent Coombs · Answer

There's been other threads about this topic. Here's one of those threads:- https://www.biggerpockets.com/forums/12/topics/175...

I haven't YET heard of any horror "SWD" stories, so I hope there aren't any. All the best...

Brent Coombs · Answer

Congrats on this buy. REO just means: owned by the previous owner's Lender (because that owner welched on paying their mortgage out). I agree with you that any prior liens should be wiped out by their agreeing to your Offer (which should have included implicit words to that effect).

The Lender probably would have "paid" more for it at the foreclosure auction - but, where were you and everyone else on THAT day to force the bidding to go beyond $984.00?

It's worth asking about what expense would be incurred to chase an "official" Warranty Deed, rather than a "Special" Warranty Deed. If you do, can you report back as to the cost? Cheers...

Wayne Brooks · Answer

Yes, you're good to go, assuming clear title.  The price they "bought it back for" is irrelevant.  Usually this is because at the auction they set a minimum bid of say $40k, no one bid that, so they it for "costs of the sale", which was $984.

Joshua D. · Answer

Hey Michael!

Thank you. There was a prior mortgage lien on the property for $97,000. However, the sales agreement states that they will deliver to us a special warranty deed clear of all liens and encumbrances, with good and marketable title, insurable by any responsible title insurance company at regular rates. I did ask about the mortgage and they said they will make sure to satisfy of record the mortgage prior to closing.

It appeased me, and I checked for water, sewage and trash liens and there was one on the water for $200. No judgments that would follow the property, that I could see.

Joshua D. · Answer

@waynebrooks thank you so much!

Joshua D. · Answer

@Brent Coombs Thank you so much for lending that wisdom Brent, I appreciate it! Can you tell me the difference between a special warranty deed and a regular warranty deed?

Joshua D. · Answer

With that language being in our sales agreement, wouldn't it assume that we'd be fine to move forward, being that they said they'd give us special warranty deed clear and insurable title?

What exactly is a REO house?

Most Popular Reply