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REO Properties: How to Find and Buy Bank-Owned Homes

Real-estate owned (REO) properties can be affordable options for prospective buyers. An experienced real estate agent can help guide you through the process.
June 9, 2020
Home Search, Mortgages
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People who plan to move aren’t the only ones who put their homes up for sale. Lenders also list houses on the market.

Bank-owned homes — also known as real-estate owned (REO) properties — may be worth considering as a first-time or move-up buyer. Lenders are motivated to unload these homes and are inclined to offer fair prices.

Here’s what to know about finding and buying a house that’s owned by a bank.

What is an REO property?

Bank-owned or REO properties are foreclosed homes that were repossessed by lenders. Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders, also have REO properties. The term “real-estate owned” comes from an accounting term — “other real estate owned” — used on bank financial statements. Nonbank mortgage companies sell all the mortgages they originate and don’t own REO properties.

Here’s how a home becomes an REO property:

  • After a borrower fails to make mortgage payments for a certain period, a lender can begin the foreclosure process.
  • The lender issues a notice of default, then later, if the borrower still hasn’t made payment, a notice of sale.
  • Unless the borrower comes up with the money, the home is offered for sale at a public auction.
  • If the house doesn’t sell at auction, the bank takes possession of the property and sells it to traditional home buyers or real estate investors.

A home can also become bank-owned if the lender accepts a deed in lieu of foreclosure.

NerdWallet's coronavirus resources page tracks the latest developments, including information on loan and payment relief, ways to cope and how to best manage your personal finances.

If you can't make your full mortgage payment, or you're worried that you won't be able to make the payments soon, contact your mortgage servicer immediately. Under provisions of the CARES Act, you may be eligible for mortgage forbearance, temporary relief in which the lender allows you to make lower monthly payments, or no payments at all, for a specified time. NerdWallet's article about mortgage forbearance explains the basics.

A forbearance may prevent you from getting another mortgage for at least three months. Lenders are unlikely to approve you for a mortgage until you have made three on-time payments following the forbearance. During that period, you probably won't be able to get a mortgage to buy a home or to refinance.

See what types of mortgage relief programs are available to homeowners who are worried about making their house payments due to the coronavirus outbreak.

To get help, you will need to contact the mortgage servicer that collects payments. See an alphabetical list of mortgage servicers with contact information.

Here are general guidelines for what to do if you can't pay your mortgage.

How to find bank-owned properties

Bank-owned properties are for sale in virtually every city. You can find them through:

  • Real estate agents. Bank-owned properties are on the Multiple Listing Service (MLS), the database that real estate agents use to see and post listings of homes for sale.
  • Bank websites. Some banks let you search for real-estate owned properties on their websites.
  • Real estate listing websites and companies that connect buyers with foreclosed properties, such as Auction.com, Hubzu and RealtyTrac.

How to buy a bank-owned home

Buying a bank-owned home is similar to purchasing a house from a traditional owner, but with a few differences. Here are some tips:

  • Before shopping, get preapproved for a mortgage to show you’re a qualified buyer, just as you would when shopping for any type of home.
  • Find a real estate agent with experience helping clients buy REO properties.
  • Work with your real estate agent to make an offer. Lenders generally price foreclosed homes at market value, so don’t expect deep discounts. After you make an offer, it may take longer to complete negotiations than with a traditional owner because multiple people at the lender may need to give approval.
  • Expect your own mortgage lender to require a home appraisal to estimate the property’s market value.
  • Get a home inspection to learn about the property’s condition and needed repairs. An inspection is always recommended when buying a home, and it’s critical when purchasing an REO property because records of maintenance and repair work may not be available. Most REO properties are sold “as is,” so you’ll want to consider the cost of repairs in your offer.
  • Get a title search to check for any liens against the property that might not have been discovered at foreclosure.
  • Consider a renovation mortgage if you’re thinking about buying a bank-owned fixer-upper. A renovation mortgage lets you get one home loan to combine the cost of improvements and the purchase price.

» MORE: See best mortgage lenders for home improvement loans

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