How To Find And Buy REO Properties: The Investor's Guide

foreclosure reo Nov 14, 2019

REO properties continue to present lucrative investment opportunities for many real estate investors today.

That said, many people do not clearly understand what REO foreclosure properties are, how to buy them, and how the foreclosure process works.

These are some of the questions that this article seeks to answer. Read on to learn more about how to find and buy these properties.


What Is An REO Foreclosure Property?

A Real Estate Owned or REO foreclosure property refers to property that has been seized by lenders, such as banks, from people who have defaulted on their mortgage payments.

An REO foreclosure property can include condos, detached homes, townhouses, commercial property, multifamily property, and land.

Whenever a borrower is unable to consistency make mortgage payments, the lender has two options for covering the loan including a:

  1. Short sale or
  2. Public auction of the property.

If no bidder at a foreclosure auction comes up with the amount of money that the lender is seeking to cover the existing loan, the bank takes ownership of the property; hence the name real estate owned property.

Once the real estate is foreclosed on and owned by the lender, a real estate agent is contracted to list the REO property for sale

If you're still wondering, "What is an REO foreclosure property,"

Watch this quick video from Realty Store that answers the question, "What is REO?"


How Do REO Foreclosures Work?

There are several things that you should know to understand how REO foreclosures work.

Banks and lenders are not in the business of buying, fixing, and flipping properties - their business is in collecting interest on debt used by borrowers to purchase real estate investments.

When a borrower isn't making payments - the bank isn't making money on their debt investment. So, they "foreclose" on the property with the goal of recapturing their investment and turning it into a profitable loan yet again. 

REO foreclosures work differently depending on the state the property is located in.

In some states, the lender needs to file an action in state court, essentially getting permission from the court, in order to begin the foreclosure process.

This is called Judicial Foreclosure and those states are often referred to as "Judicial States."

Judicial foreclosure benefits the borrower by requiring the lender to present their case for foreclosure in an open forum, which allows the borrower more time to stay in their home and get current on payments. 

The rest of the states ("Non-Judicial States") do not require a lender to demonstrate in court that requirements of a foreclosure have been met.

Rather, the borrower is supposed to file suit to claim the lender did not meet those requirements. 

Here's a link to a complete list of all U.S. states which are judicial and non-judicial foreclosure

Once the property is foreclosed on, the lender will make sure that any tax arrears and liens on the property are cleared before putting it up for sale.

The best route to making a better offer for buying listed REO foreclosures is through the help of real estate agents with experience in buying and selling these kinds of property.

After making the offer, both parties will negotiate price and contingencies, which mainly include appraisal and inspections.

An appraisal is important in making sure that the value of the property complements the loan that the bank is offering for the completion of the deal.

Inspection contingencies allow the buyer to back out in case the REO property has repairs that are too extensive to make it a profitable investment. 

what is an reo property 

How Does The Foreclosure Process Work?

The process of foreclosures is quite simple but, requires you to be very keen to get the best deal.

The following is a description of how the process of foreclosure works:


A foreclosure can only occur whenever a home or property owner is unable to repay the principal or interest on their mortgage loan.

However, they will first give the homeowners a grace period of about thirty days and various alternatives to avoid foreclosure.

During this period, the homeowner can request the lender to adjust the loan payments, interests, and other elements. You may also want to consider signing up for foreclosure avoidance counseling.

Besides, selling the property to pay for the mortgage could also be an option worth considering. However, sellers should consult with a real estate professional first.

Notice of Default

The lender will issue a Notice of Default ("NOD") if the borrower is unable to repay the mortgage within the grace period. The notice is mailed to the property owner with a certified letter, giving him or her 90 days to clear the recent bills.

That is when the foreclosure process formally begins. One of the options for avoiding foreclosure is mortgage reinstatement, which requires you to make all the defaulted payments including interests and other fees stipulated by the lender at once.

Here's a sample of how a notice of default letter starts off:

reo foreclosure property notice of default

Notice of Sale

If after the 90 days, the homeowner is unable to fix the default, the lender will give a Notice of Sale. The notice will show that the trustee is scheduled to auction the property within the next 21 days.

The lender will send the notice of sale to the homeowner as well as publish it on the local newspapers for three weeks before the set auction date. However, the homeowners can still reinstate the mortgage until five days to the auction.


The trustee will sell the property to the highest bidder at a public auction. The bidder must immediately pay the bid price, preferably within 24 hours of a sale.

You will then, receive title to the property from the trustee as the new official owner of the property. In case the home is still occupied at the time of sale, you should give the occupants a three-day written notice to vacate the premises.

If the lender fails to sell the property at a public auction as discussed above, the home becomes what is known as REO properties.

That means the lender will take possession of the property after foreclosure. Find out more about the foreclosure process here.


Why Are REO Foreclosure Properties A Good Investment?

While investing in bank-owned property has its share of merits and concerns, it can generally be a good investment with significant returns for modern real estate investors.

The following are some of the reasons why REO foreclosure properties can be a good investment:

Fewer title discrepancies

Although title discrepancies are common in the real estate industry, REO properties tend to be much safer from such title risks.

Before putting up the property for sale, lenders usually clear up all concerns about the property title that would discourage potential buyers like tax arrears and lien issues.

They make sure that the property is free from any claims by the government or aliens so you do not have to worry about ownership wrangles after buying it.

Greater opportunities for leverage

REO foreclosures are no doubt a pain in the neck for banks and other lenders. Holding onto the homes only impacts additional expenditure in terms of maintenance.

Besides, the longer these properties stay without being sold, the more their losses keep piling up. As a result, banks usually want to sell the properties quickly but, at reasonable prices.

So long as you can make a good case to convince the bank to lower their price and complete the sale as soon as possible, you will easily land a great deal.

The lender can initiate a short sale, allowing buyers more room to buy properties at better prices.

Lenders can easily make concessions

Although banks are not in a hurry to dispose of REO properties, there is always a certain amount of urgency in getting back the money on those properties.

As such, they are willing to negotiate several things to finalize the deal. On some occasions, they will agree to cover the costs of appraisal and home inspection.

In some instances, banks may also reimburse the costs of renovations and other upgrades if you have committed to buy the property.


Is There A Difference Between REO And Foreclosure?

Yes. The key difference between REO and foreclosure is that an REO property has been repossessed & is now property owned by a lender. A foreclosure property is in process of being repossessed by the bank. 

REO and foreclosure are often used interchangeably. However, knowing the difference will set you apart from those who don't know exactly what they are talking about. 


How To Find REO Properties For Sale:

The most convenient way of finding REO properties for sale is through the internet.

The following are the key places where you should look to find REO foreclosures to buy:

Online Real Estate Owned Directories

REO directories and online auction platforms list a wide range of real estate owned REO properties for sale from where you can easily choose the desired properties.

From these sites, you have the option of buying properties through an auction, real estate agent or direct bids on the site.

Besides, you can also find listings of other properties facing imminent foreclosure.

Examples include:

Real Estate Brokers

The primary responsibility of real estate brokers is to help investors find properties for sale. However, they usually can offer property listings with information that is not already in the public domain.

With their experience and skills, they can help you to quickly get just the right REO property without much effort.

Besides, they have ready access to Multiple Listing Service for selected areas, thereby offering you a variety of properties to choose from.

You can simply find a real estate broker online, at the local real estate office or ask for recommendations from family and friends.

REO Banks and Government Lenders

Sometimes, banks and government lending institutions list REO homes for sale on their websites. But, they only list their REO properties acquired through foreclosures.

The information about their properties is not as much detailed as those offered by REO directories and real estate brokers. Some listings are accompanied by photos of the properties while others do not.

The REO listings also provide contact details for the real estate agents that can take you on a tour of the property and help with making an offer on the chosen one.

Examples of government lenders include HomePath and HomeSteps. These sites are accessible to all and interested buyers can easily place bids directly therein.


reo properties

How Do You Buy An REO Foreclosure?

Here’s how to proceed with buying an REO foreclosure:

Find a lender and review your financing options

Lenders are often highly motivated to sell REO foreclosure properties and, you should be ready to make an offer when the time comes.

Thus, talk to a mortgage lender and discuss with them about the finances for buying the home.

One way to avoid delays is through obtaining pre-qualification from the lender that owns the property.

That will demonstrate that you are financially stable to buy the home, thereby increasing your chances of getting the deal.

In many instances, the property will not qualify for financing due to it's physical condition, so consider using a private money lender or paying in cash. 

Engage a real estate broker with experience in REO

Real estate brokers with experience in REO properties will effectively guide you through all the stages of the buying process, making sure that you get the best properties at the right prices.

A buyer’s real estate agent will help you to narrow down to the most suitable REO property to buy.

Besides, they will also facilitate the process of getting an appraisal on the chosen property to determine its true value.

Make an offer

A professional real estate agent will assist you in determining the best offer that is likely to be accepted by the lender.

When making an offer, you may submit your contract, other relevant documentation, and some money to serve as a deposit.

Most lenders usually require buyers to deposit about 1 to 2% of the purchase price in an escrow account.

Conduct home inspections

The property should also be inspected by a professional to give you an inventory of the required repair works and upgrades. 

The cost of any expected repairs will be factored into the purchase price.

If the home had been inspected by the lender, you should get a copy of the inspection report.

Negotiate with the lender

Based on the condition of the property, days on market, and recently sold real estate comps, try to negotiate a reasonable price that the lender can settle on.

Real estate agents come in handy in such situations.

Finalize the financing

The last stages of buying an REO foreclosure involve filling out the necessary paperwork and liaising with the lender to make sure that the mortgage will suit the given offer.

At this stage, you should also verify the title deed.

Close the deal

With all the above in place, you can then, finalize the buying process. The buyer and lender will sign the necessary documents to formally transfer ownership of the property.

In case you fail to buy the home within the stipulated date, the lender may charge penalties for the delays.


How To Buy REO (Real Estate Owned) Homes From Banks:

The process of buying an REO (Real Estate Owned) home is not very different from that of buying any other kind of property. However, there are a few disparities that you should know.

The following are the key steps on how to buy REO properties from banks:

  • Check the available listings of bank-owned property (The most suitable places to browse REO homes for sale by banks include the websites of banks, MLS and real estate agents)
  • Identify the right lender and discuss your options for REO financing
  • Consult with a real estate agent with experience in buying property owned by a lender
  • Decide on the key features or characteristics of your ideal REO home
  • Get home appraisal and inspections
  • Submit your offer with the necessary documents and a down payment
  • Negotiate the terms of sale with the bank
  • Complete the paperwork for loan application and verify the title deed
  • Make the final payment and sign the homeownership transfer papers


How To Find Bank Owned Properties To Buy On MLS:

A Multiple Listing Service or ("MLS") is a centralized database that provides a comprehensive online database of various real estate properties for sale in selected areas.

Real estate brokers have access to the MLS but, you can also find REO home listings for sale on the websites of REO banks and government lending insurers.

There are easy ways to find bank-owned properties to buy on MLS.

You can browse the listings based on the city, county, state or even ZIP code of the property’s location. On most occasions, foreclosure listings appear in alphabetical order.

Search for MLS listings with keywords such as: Bank Owned, REO, Auction, and Real Estate Owned


How To Find REO Agents Selling Foreclosed Houses:

There are a few tricks on how to find REO agents selling foreclosed houses.

One is by simply conducting a Google Search on REO agents in the area where you intend to buy a property. When searching for REO agents online, be sure to also check their reviews.

The local real estate office can also offer referrals for a good REO agent.

Find recently sold REO properties and call the listing agents that sold those properties. 

You may also want to ask around from friends and family about trusted REO agents selling foreclosed homes.


How To Find REO Properties For Free:

Today, there are numerous options for finding REO properties.

REO property listings are posted on various online platforms, which are often free but, some also require small subscription fees.

Nevertheless, here’s how to find REO properties for free:

Bank REO

The websites of bank REO homes are a great platform for those REO home buyers.

The recommended bank REO sites to check out include: 

Government REO

Some of the best sites for finding government REO properties include: 

Real Estate Agents and Property Services providers

You can also find REO foreclosures for free through real estate brokers and property services including:


How To Buy Bulk REO Properties From Banks:

Bulk REO properties are generally considered to be more profitable than single REO foreclosures.

Banks offer bulk REO properties whenever they have several similar REO properties for sale. To buy the properties, you should first contact the banks offering the packages.

You should also know the decision-makers at the banks who are responsible for the sale of bulk REO properties.

The bank representatives will then, provide a list of the properties with information about their location, market value, appraisal value, and others.

One way to buy bulk bank-owned property is through institutional investors like hedge funds and private equities.

The other alternative is to buy the packages in bulk, choose the property that you need then, sell the remaining at prices that will cover your acquisition fees.

Nevertheless, due diligence is critical to buying bulk REO properties from banks.


What Banks Have REO Properties For Sale?

The following is a list of the national and regional banks offering REOs for sale:

National REO Banks

Regional REO Banks

You can also find more national and regional REO banks here.


Buying REO Property Tips:

The following are key REO property buying tips to keep in mind:

    • Do proper research about REO properties for sale and the current real estate market
    • Obtain a pre-approval letter for home financing, preferably from the bank or entity selling the property
    • Engage REO real estate agents
    • Create a precise list of the particular types of REO properties that meet your needs and budget
    • Hire a professional for a home inspection and title search
    • Review your offer before submission to make sure it can appeal to the bank

Here's an informative video with tips on on How To Buy REO Properties from Tampa Realtor Lance Mohr:


Can You Wholesale REO Properties?

Yes, you can wholesale REO properties. However, you should first find the listings of bank-owned properties and sell them in the same conditions to prospective investors.

Wholesaling REO homes simply entails making an offer, placing the properties under contract, finding a buyer and selling the properties. Many banks take about just one month to finalize the deals.

Make sure your purchase agreement allows you to assign the contract to your end buyer. 


Can You Flip REO Properties As An Investor?

Yes. As an investor, you can flip REO properties for great returns on investment.

For success, you should consider properties that only require repairs that fall within your budget and capabilities.

Buy REO properties that demand at least 15 percent less the price of the last similar property sold in the area and, even consider listing it as rent to own property.

It's wise to have multiple exit strategies and financial reserves in case you run into surprises and need a backup plan. 


What’s The Difference Between REO And Short Sale?

In Real Estate Owned properties, the bank or lender assumes the ownership of the home after:

  1. the owner fails to repay his or her mortgage, or
  2. the property fails to sell at foreclosure auctions.

A short sale, on the other hand, is an alternative to foreclosure. It takes place when the outstanding mortgage loan is higher than what the property can achieve when sold.

In short sale, the lender accepts a discounted amount from the buyer and, releases the security for the loan to avoid potential losses.


The Bottom Line: What To Know About REO Properties

Following the above discussion, there is no doubt REO properties are a rewarding investment opportunity with lucrative returns for real estate investors.

However, it is critical that you properly understand how the foreclosure process works and how to choose profitable REO properties to invest in.

To avoid the pitfalls, you should seek the help of a professional real estate broker with experience in buying and selling REO foreclosure properties.

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