REO and You
“Real Estate Owned” or “REO” is a property listed by a Lender after they have completed the foreclosure process. When these properties are listed, the Lender establishes their own conditions in which they will offer the property for sale. Often they will offer a “Special Warranty Deed”. A Special Warranty Deed is a means of ownership transfer where the Grantor (the lender) gives you the Deed and essentially promises only that they have the right to grant ownership, but will not defend the title against defects or problems. There is rarely an issue with this type of transfer and it’s perfectly legal, but there are some things that an agent can do to help you.
What Should You Ask For?
Not all lenders will “negotiate” with you, but many will. Agents and Buyers should review addendums from Lenders seeing what type of terms and what type of Deed they are presenting. The best Deed type is a “General Warranty Deed”. A General Warranty Deed promises that the Grantor (Lender) has the right to legally transfer the Deed and promises to defend the title against “clouds” or defects on the property. That means they will defend against encumbrances or claims previous owners may have. Remember that someone had to be foreclosed on for the lender to take that property back. The previous owners may have a grudge.
Even if the Lender will not negotiate this higher level of Deed transfer, the Purchaser should always get Title Insurance. Title Insurance is voluntary for owners (usually mandatory for lender coverage) and protects the homeowner against attempts to defeat the new owner’s right to posses the property.
There are many things that Purchasers and Agents need to be aware of when representing a purchaser in this market. This is just one of many concerns. Ask your agent if they are experienced in working with REO properties and always ask what type of Deed you’re going to receive. There are many different types of Deeds and your agent should explain all the options.
Affordable Homes in Spotsylvania, Virginia
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Affordable Homes in Caroline, Virginia
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