While many homeowners and real estate investors decide to buy property in foreclosure, others decide to look for REO (real estate owned) properties. These are properties that, for whatever reason, were not sold by the bank during a foreclosure auction, and are now fully owned by the bank itself. 

REO Property Buyers Need a Full Title Search 

Purchasing an REO property can have several benefits over buying a foreclosure; first off, unlike when buying property at a foreclosure auction, a buyer will typically have some time to see and inspect the merchandise in person before making a final decision. In addition, most banks will do some repairs on the property in order to make it more marketable so you might not have to deal with a property in extremely poor condition. And, the bank will have to ensure that any current occupants are evicted before attempting to sell the property, so you don’t have to worry about adverse possession. Plus, the bank will also clear the previous owners’ mortgage on the property, contact the HOA to pay off any outstanding dues, work with the IRS to remove any remaining tax liens, and (most of the time) will have paid off any mechanic’s liens as well. 

IN SOME STATES, REO PROPERTIES ARE EXEMPT FROM REGULAR TITLE DISCLOSURES

While an REO property may be less risky to purchase than a foreclosure, it doesn’t mean that they’re risk-free. In fact, an REO property is still a significantly riskier option than a traditional purchase. This risk is compounded by the fact that, in some states, banks will not necessarily have to tell you about defects with the property’s title (even if they know that some exist.) These title issues could include: