Buying an REO has been a common experience in the last 2 or more years for many real estate buyers both professional and beginners. The main reason for this high activity is of course buying homes at high discount to market. Many of these purchases will be held and rented until the owner can sell them for whatever profit they want.What this means in the future is that these owners will probably be holding these homes longer than they anticipated due the higher than expected inventory . With numbers as recent as the week of July 13th inventories are still building across the United States.
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.
The stock market as an early economic indicator may be showing some hope but I don't think that it is entirely clear at this time. We are getting good news and bad news pretty much daily and it certainly is not clear if the Bulls or Bears are in charge.
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