REO properties are properties that the bank or lender has acquired as a result of the non-sale of the property at the conclusion of the foreclosure process. REO is an acronym which stands for Real Estate Owned, in this case by the financial institution.
Lenders generally offer REO properties for sale on an “AS IS” basis, and no warranties on the property are expressed or implied; furthermore, the lender will not provide a seller’s disclosure statement, because they are not able to make a judgment as to the manner of care or maintenance that the REO property had received while under the control of the previous owner. The REO properties are listed for sale through a real estate broker retained by the lender, and all offers pass through the broker first.
Potential buyers of REO properties should be aware that, while the lender offers the property on an “AS IS” basis, they have the right to inspect property before making an offer. The prospective buyer should also understand that the lender is not responsible for providing a survey, home inspection or pest report, all of which will be undertaken by the buyer at the buyer’s expense.
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The lender may require that potential buyers either pay cash for the property, or be pre-approved and provide evidence of the buyer’s ability to obtain financing for the property. The lender generally will not hold a second mortgage on the REO property, may be offer incentive financing.
The lender may take several weeks to make a decision on an offer, especially if there are multiple offers for the REO property. It is likely that the lender may counter the offer, to which the buyer is expected to respond. Once a decision has been made, the lender may also require closing to take place within a specified number of days once the contract has been accepted; this may be as little as 14 days but usually it the lender expects closing to take place within 30 das of contract acceptance. Failure by the prospective buyer to meet the deadline given by the lender may result in the buyer being required to pay to the bank a per diem penalty for the extension.