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If you’ve decided to buy a home, but you don’t want to break the bank, one good option might be lender-owned properties, commonly referred to as real estate owned (REO) homes.

In this post, we’ll go over what these properties are, how to find them and what to consider if you’re thinking about buying an REO property.

What Is REO?

Real estate owned homes refers to properties that the lender or mortgage investor now owns. As we’ll go over below, there are multiple ways for this to happen. But a home doesn’t automatically become REO once a lender takes possession. In order to recoup losses and get rid of the property in short order, a lender will first try to sell a home at auction.

Unfortunately for the lender or mortgage investor, properties often don’t sell at auction. There are multiple factors that go into this.

The main hindrance is the reality that many times the reason people go into foreclosure is that they owe more on the house than it’s worth due to a downturn in the market. The foreclosure process is also very costly involving attorney fees and the cost of seizing and securing the property, among other things. When the lender then tries to sell that property, they have to price above actual market value in order to recover the balance and their costs.

If the lender who took possession of the home can’t sell the property at an auction, then the lender takes over ownership of the home. The lender then tries to sell the real estate-owned property to minimize their losses. At that point, it becomes an REO property that stays on the lender’s books for a while.

Is There a Difference Between REO and Foreclosure?

Although one of the ways this commonly happens is through foreclosure if the person was unable to make their payments. The terms REO and foreclosure aren’t synonymous with each other.

REO status might also be a result if the home was given back after the last homeowner moved out or passed away at the end of a reverse mortgage. In the case of a reverse mortgage, if heirs don’t want to pay off the balance or refinance the home to keep it and don’t wish to deal with a sale, they have the option of giving the property back to the lender or mortgage investor.

How Do You Buy an REO Home?

If you’re looking to buy an REO home, how do you find one? How do you know how much you can afford? Let’s break it down.

Where Do You Find Bank-Owned Properties?

A good place to start in your looking for property is to search the publicly available listing from the Department of Housing and Urban Development (HUD).

In addition to the properties available from HUD itself (FHA foreclosures and reverse mortgage sales), this directory also connects you to homes listed by other federal entities, including the Department of Veterans Affairs, the Department of Agriculture and the IRS.

In addition to the listings of the federal government itself, you’ll also be able to reach the REO sales sites for Fannie Mae and Freddie Mac, which are government-sponsored entities (GSE) from that same HUD page.

Although this isn’t as common anymore, large banks do occasionally operate under the old model where they make a loan and hold onto it for 15 or 30 years rather than selling it to specialized mortgage investors like Fannie Mae or Freddie Mac and having it be included in a mortgage-backed security (MBS).

In these cases, they may have their own listings you can search online to find an REO property they’ve repossessed.

Strengthening Your Offer

For any sale, the entity selling the REO property will want to be confident the deal is going to go through because they want to get off their books as soon as possible.

In order to make your offer stand out, we recommend you couple it with a strong mortgage approval. With our Verified Approval, we pull your credit to get a look at your median FICO® score to determine what loan options you may qualify for, but we also ask you to share documentation on your income and assets. This documentation can come in the form of tax returns, W-2s, pay stubs and bank statements. Within 24 hours of getting your information back, our team will make a decision on your Verified Approval.

We use this to determine your debt to income ratio (DTI). This gives us a highly accurate picture of the monthly mortgage payment you can afford. Because it’s verified, the listing agent can be extremely confident your deal will go through and it gives your offer strength equivalent to that of a cash buyer. You should also feel extremely confident in your offer, and we’ll back it up. If your mortgage loan doesn’t close through no fault of your own after getting a Verified Approval, we’ll give you $1,000.1

At the same time, at Quicken Loans, we know that you’re not just trying to figure out how much you can afford. You’re also trying to pay as little as possible for it on a monthly basis. That means having the lowest interest rate you possibly can. In a rising rate environment, the traditional idea that you can only lock your rate once you find a house isn’t going to get it done. At the same time, you don’t want to be rushed into finding your home before a rate lock expires.

That’s where RateShield™ Approval can help. This loan option allows you to lock your interest rate for up to 90 days while shopping for a new home.2 Once you find your new home, we compare your initial locked rate to the rates currently available on the market. If rates are higher, you just keep the rate you locked. If rates go up, your rate stays. If rates go down, your rate drops. Either way, you win!

It’s important to note that any mortgage approval you get will show you the very top end of what you can afford. The reasoning behind this is that it gives you room to go up if you get into a bidding war, but it’s important to not start out by looking at homes at the top end, particularly in this space.

Things to Consider with REO Properties

Buying an REO home can be a good idea because they’re usually priced low because the lender wants a hassle-free process and hopes to create some competition between buyers. However, these types of homes often need repairs, and the lender usually won’t pay for any of the work because they don’t want to spend any more money than they already have on the home. These homes are often sold as is, warts and all. So, you can get it for a lower price, but you might have to spend a lot of money fixing up the home.

The following things will help you determine whether a particular REO property is right for you.

Get a Real Estate Agent Familiar with REO

When you’re looking at foreclosures and other investor-owned properties, it’s helpful to have someone who’s familiar with that market. REO properties have their own peculiarities and it helps to have someone who’s an expert.

To begin with, they’ll know how to structure an offer that looks most pleasing to a lender or mortgage investor. A good agent will know what they expect to see in the offer and, just as importantly, what they don’t. They may also have some experience with telling you what would need to be done to get the house up to your living standards.

Our friends over at Rocket HomesSM can help match you with a real estate agent who understands your goals as well as your budget.

Get a Home Inspection

A home inspection is especially key when it comes to buying an REO property. Although the lender or investor is unlikely to fix any problems that come out of the inspection, it’s still important to get one done so that you know what’s wrong with the house before you move into it.

By going through their home with the inspector, you can also ask questions and know what problems to be on the lookout for.

If there are any absolute deal breakers regarding work you don’t want to do, you’ll be able to back out of the deal now and only lose your deposit. If you and your real estate agent can get the investor to agree to an inspection contingency, you might not even lose that.

Understanding Special vs. General Warranty Deeds

In most home sales, typically, you have a general warranty deed. As a buyer, this tells you a couple of things.

  • The seller has the right to sell you the property as they currently own it.
  • There are no other legal issues or claims to the property by anyone other than the seller.

If you get a general warranty deed, you can be confident no one will come along to say there are issues with your title from before you own the property. There are no liens and the property is owned free and clear by the seller.

With an REO sale, you may not be able to get a general warranty deed. In this situation, it’s common to instead receive a special warranty deed. In this instance, special doesn’t mean better.

With a special warranty deed, the mortgage investor is likely to only guarantee that there are no additional title issues that have been created since they took over ownership. They don’t necessarily warrant that there weren’t other pre-existing title issues.

Although they do have the right to sell the property, a special warranty deed doesn’t necessarily preclude there being other issues like pre-existing liens on the property. For this reason, it’s important to take precautions.

One thing you might do with an REO property is look at buying an owner’s title policy. You’re required to get a lender’s title policy, which protects the lender’s investment in the properties shouldn’t there be another ownership claim against your home, but taking the extra step to get an owner’s title policy will help protect your investment in the home and make you whole if any pre-existing claims against the property come back to bite you.

The owner’s title policy could be particularly helpful when it comes to buying an REO property. Many of the homes available have been foreclosed on. In general, this means the previous owners probably had financial trouble and you may have to worry about tax liens or judgments on the property. Having an owner’s title policy could help you if anything were to come up.

Are you looking at buying an REO property? Feel free to get a mortgage approval online through Rocket Mortgage® by Quicken Loans. One of our Home Loan Experts would also be happy to go over your situation if you give us a call at (800) 785-4788. If you still have questions, you can let us know in the comments below.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance, appraisal and a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Quicken Loans’ control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Quicken Loans through a mortgage broker. Additional conditions or exclusions may apply. Verified Approval within 24 hours of receipt of all requested documentation.

2 RateShield Approval locks your initial interest rate for up to 90 days on 30-year conventional, FHA and VA fixed-rate purchase loan products. Your exact interest rate will depend on the date you lock your rate. Once you submit your signed purchase agreement, we’ll compare your rate to our published rates for that date and re-lock your interest rate at the lower of the two rates for an additional 40 to 60 days. Quicken Loans reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Quicken Loans. This is not a commitment to lend. Additional conditions or exclusions may apply..

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This Post Has 70 Comments

  1. Hi,
    I’m looking for information on a property that is about to go to auction. May I contact information of someone I can speak with about the property?

    1. Hi Tammy:

      Thanks for reaching out! If you can get me the address of the property, we can help you get whatever information we may have on it. I’m going to email you. Have a wonderful day!

  2. Like many others, I am looking to find information on a house that is listed in pre-forclosure. The house I am inquiring about did go to auction in April, but it was not purchased. Quicken Loans is listed as the mortgage holder for the house, and since the auction was not purchased at the auction, the property was reverted to the beneficiary (I assumed Quicken Loans). Currently the house is vacant and has a realtor type lock box on the front. Any information on the status of the house or otherwise would be appreciated. Thank you in advance.

    Property Location: 3202 Brown Rd., Albion, NY, 14411

    1. Hi Mike:

      I’m going to get this to our team to share whatever information we can. Most of the time, it goes to the investor in the mortgage. That could be Fannie Mae, Freddie Mac, FHA, etc. They would then control the sales process, but I’m going to have someone reach out.

  3. We have sold our home and found a home in Alabama where it says on the Tax deed that Quicken loans is the owner. Who can I speak to to purchase this home from Quicken. Please email me at your earliest convenience. We really like it and want to move on it. Thanks

    1. Hi Wendy,

      While we may have foreclosed on the property, we don’t control the sale. Usually that’s up to the mortgage investor (Fannie Mae, Freddie Mac, FHA, etc.) and/or local authorities. That said, I’m going to get it to our team to give you as much information as we can on the sale. Have a great day!

  4. May God Bless You.
    I am interested in finding out more information of an REO home where Quicken Loans is the lender. Can someone email me at the email address above so I can send them the address of the property in Virginia?

  5. After weeks of trying to contact the listing agent by cell phone and her office phone, I decided to find your information for REO online. Thanks! The house has some structural damage and I’m assuming that is why it did not sell at auction and reverted back to you. At least that is the best my research can provide on this home. Same agent has now “officially” relisted the home with a fixed price by lender/owner but, again, does not answer any calls or return any messages. If you could have someone contact me, perhaps we can get something accomplished. I would truly be grateful!

    1. Hi H. D.:

      I’m going to reach out to you for the address on the property and then get it over to our Client Relations team. Sometimes we control the sale and sometimes it’s handled through Fannie Mae, Freddie Mac, FHA, etc., but if you can give me the address, I can get it over to our team to give you whatever information we might have.

  6. I’m interested in a REO that is owned by Quicken. How can I get more information on this home and any others Quicken has in my area?

    1. Hi Steven:

      We don’t maintain a public listing of the foreclosures we have. This would be of limited value anyway because the sales are usually controlled by the investor who originally backed the mortgage. That said, if you can give us the address of the property you’re looking at, I can pass it along to our team to give you as much information as we can. I’m going to reach out to you via email.

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