Foreclosures/REOs - (Based on my experience and opinion)

Foreclosures are where the home owners have failed to pay the mortgage and the bank has completed the process of taking back the property.  The bank now owns the property and often refers to it as an REO.  This means "Real Estate Owned" and is a historical term used by the bank to designate their portfolio of these types of properties.

Understand, that the bank does not want to own an REO and completing the foreclosure is only done when all other options (such as a short sale) have been abandoned.  At this point, they will be highly motivated to sell this property as soon as possible.  It will usually be listed with a real estate broker, just like any other property, and placed on the MLS.

When making an offer on an REO, be prepared to deal with a bank "asset manager" who acts as the seller.  You, as the buyer, will likely work with your favorite REALTOR® agent (perhaps me).  We will create an offer and present it to the listing agent who will present it to the asset manager.  You will find that, unlike short sales, the asset manager will provide a very quick response (within a day or two).

Be prepared for the bank to be somewhat firm on their price.  Their stategy is usually to position the property at a very competitive market price to get offers quickly.  Thus you will likely not be able to come in with an even lower price thinking that the bank is desperate, they aren't.  They have already built in most of the heavy discount that they are willing to take.

At the same time, please realize that they will usually not be willing to do any inspections or repairs.  They will likely only sell - "AS IS".  You should be prepared to do your own inspections and we should build that contingency into the contract.

With all this being said, REOs are likely to provide buyers with some of the very best bargains around and likely are as easy to deal with as any normal sale.

Foreclosures - The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Servicer - A firm that performs functions in support of a mortgage that include collecting mortgage payments, paying the borrower's taxes and insurance, and generally managing borrower escrow accounts.

Short-Sale - The process in which a servicer works with a delinquent borrower to sell the house by a real estate agent prior to the foreclosure sale.

These definitions are taken from the FannieMae website and are part of a Glossary of Terms supplied to make Homeowners familiar with Real Estate  processes. They are included in this website as courtesy.