The Deal: REOs
According to RealtyTrac, an online marketplace for foreclosure listings, as of October this year, Hawaii had nearly 3,600 REO (real estate owned), or foreclosed, properties. “Any time you hear the word REO, a lender has foreclosed on the property and is putting it on the market for sale,” says Century 21 All Islands realtor and REO specialist Mathew Ngo, who says that the greatest concentration of foreclosures on Oahu is on the island’s Leeward side. “The hot zone for REOs is toward the west side of the island,” he says. “Ewa Beach is a hot zone and west toward Waianae.” According to RealtyTrac, thus far this year, zip code 96706 (Ewa Beach) had 201 REOs, while 96707 (Kapolei) tallied 224 and 96792 (Waianae) had 164.
For prospective homebuyers, REOs can be attractive for a number of reasons. Firstly, these homes are often steeply discounted. “Typically, the lenders’ or government entities’ goal is to not let the property sit on the market too long,” says Ngo. “They have a large inventory, so their goal is to get rid of it as soon as possible. I’ve seen [REOs] listed at 5 percent less than market value.” Secondly, REO sales move a lot faster than short sales, where the bank agrees to let the owner sell the property for less than what’s owed. “[A short sale] requires the lender’s approval, it’s still in the seller’s title and the seller has to submit a contract and overall financial status, bank statements, whatever documentation they can provide to show that they are a distressed seller,” says Ngo. “Whereas, a REO has already been foreclosed on, so the seller can make a quick decision when they receive offers. It’s faster than short sales, which can take anywhere from two to eight months. With a REO, you can close within the standard 45 day period.”
Here, some additional tips for buyers considering going the REO route:
• Unlike a traditional transaction, sellers of REOs are exempt from providing buyer disclosures. “If it’s a regular sale, the seller is mandated by state law to provide a buyer disclosure, which is anything that is of material fact to the buyer,” says Ngo. “If there’s been a water leak, for example, the seller has to disclose that to the buyer. However, with REOs, they’re selling it 'as is.’”
• Both Fannie Mae and Freddie Mac have instituted First Look initiatives, which allow homebuyers to purchase REO properties as primary residences during the first 15 days of the listings without investor competition. “During the first 15 days, any offers from investors don’t even get looked at,” says Ngo.
• Buyers of foreclosed condos need to be aware that they may be required to pay delinquent maintenance fees up to $3,600, as specified in section 514A-90 of the Hawaii Revised Statutes. “It’s saying that the HOA can only collect up to $3,600, regardless if the delinquent maintenance fee exceeds that,” says Ngo.
• If you’re thinking of buying an REO, due diligence is vital. Hiring a professional home inspector upfront is always recommended. If you’re purchasing a condominium, talk to the resident manager or neighbors about a history of water leaks or other maintenance issues.
• Ask for closing costs. “I always encourage buyers to ask for closing credits,” says Ngo. "It depends, as the lender may choose another offer over one asking too much credit, but it protects the buyer from any surprise costs.” Additionally, Freddie Mac and Fannie Mae both offer seasonal promotions, such as up to two to three percent off closing costs.