Profile picture for user21590417

Interested in an REO-occupied property, but new to foreclosures

Hi everyone:

I'm interested in an REO-occupied property.  The REO property is, hypothetically, selling for $200,000.  Because this is my first foreclosure, I was hoping that someone can help me with questions.

According to the description on Zillow, it says "cash only sale with no contingencies or inspections."  I understand that I'm not entitled to inspect the REO property, but I'm a bit confused with respect to the "cash" and "contingencies" part of the description.

In terms of "cash," does this mean that I need to have $200,000 in cash to purchase this REO property, or can I have, for example, $100,000 in cash and then take out a loan for the difference?

What does it mean by no "contingencies"?

Lastly, how do i bid on this REO property?  I see on Zillow that the listing site is Hubzu, so does that mean I basically create an account on Hubzu and bid on the REO property?

Thanks in advance
  • September 25 2013 - US
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Answers (7)

Best Answer

Profile picture for Outer Banks N C
This sounds like a nightmare waiting to happen. Yes, you need cash and probably because it is in need of so much no lender will touch it. I would pass. Then you have to evict the renter there who likely won't pay you rent.


Listing says:
Property Description REO Occupied - the seller does not represent or guarantee occupancy status. NO VIEWINGS of this property. Please DO NOT DISTURB the occupant. "As is" cash only sale with no contingencies or inspections. Buyer will be responsible for obtaining possession of the property upon closing.
  • September 25 2013
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Profile picture for MountJuliet
Hmmm - Tennessee is much different than NYC.  Codes are the first thing I think of after listening to my colleagues that work NYC.  Hearing them at conferences talk about the requirements prior to closing...makes me appreciate small gov't and tell you that you should hire a local professional.  
I suggest you search the find a pro area of Zillow using the zip code for this property.  Don't select just anybody but an agent that has 30+ good reviews and several listings.  Interview them and consider employing them as your buyer's agent.  It could save you lots of time, money and frustration in the long run.  

It wasn't too long ago that my thought process changed to listen to those with more experience before rushing into a decision.  Keep gathering information to make a better decision and remember what Granny always said...If it's too good to be true... and then the other I'll tell you... There is always another opportunity!

Bob

PS - In this instance, you should be able to hire someone for commission work but - I don't like working for investors to buy lower priced properties because they run me to death and there is no money to be made much less cover my expenses.  Remember - everybody has to make some money.
  • September 25 2013
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Profile picture for user21590417
This is the REO-occupied property at issue.  https://www.hubzu.com/portal/pdp/0007090721189?utm_source=zillow&utm_medium=referral&WT.mc_id=REFERRAL_00000002#

What are the negatives and positives of bidding and potentially owning this property?

  • September 25 2013
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Profile picture for MountJuliet
To answer your second post, that is a good assumption but there are always exceptions to the rules.

Yes, you need cash for the closing.  Any earnest money placed in escrow would be at risk if you're caught playing games and cannot close because you didn't have the cash to close.  In the State of Tennessee, the Seller could also take you to court to enforce the contract.  

Don't look for a loan made and sold on the secondary market.  Those type of loans should be avoided for the reason of repairs and the seller said no loan contingency.  That doesn't prevent you from obtaining a loan from an individual or local bank.  Think about having a HELOC (Home Equity Line of Credit) in place so you can stroke a check at closing.  That's a loan using another property as collateral and could be an option for you.  Keep in mind that every situation is different and I don't have all the facts.  Sorta like the doctor having an idea on what's wrong before the blood work comes back from the lab.

There are always vultures flying around with outrageous terms for loans secured by real estate.... and your first born. 

Bob
  • September 25 2013
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Generally when the bank owned property (REO)  requires cash it's because the property requires a significant amount of work.  It can be difficult for a buyer to obtain a mortgage on a property under those conditions.  Banks are not willing to take the risk the mortgage will be declined.

Yes, you do need to create an account on Hubzu. 
  • September 25 2013
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Profile picture for user21590417
Hi Bob, thank you for the reply.  

From what I gathered from your answer, I would need the FULL $200K to purchase the foreclosure, and would NOT be able to take-out a loan for the difference even though I have a substantial down-payment.  

This is because (as you said) the repairs far exceed $5K and therefore cannot be re-insured with another FHA loan.

Is my understanding correct?
  • September 25 2013
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Profile picture for MountJuliet
I'll answer part of the questions and leave the how to bid for someone else.

Many times when it says  "cash only sale with no contingencies or inspections." the house has been inspected by a home preservation company and others.  The property has more than likely been evaluated and found not to meet the established guidelines for a loan.  Repairs are needed that exceed a specific dollar amount.  A HUD house (foreclosed FHA Loan) cannot be reinsured with another FHA loan if repairs are greater than $5000 UNLESS the loan is a 203k rehab.  

Many times there are exceptions to these guidelines.  Most agents don't know the ins and outs because it's not in our official training or continuing education.  Sometimes even the agents that know how to travel the choppy waters elect not to do so because the time and frustration is unnecessary compared to working typical transactions. 

Good luck with your purchase

Bob
  • September 25 2013
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