Why are some REO properties at auction offered to investors only? why they don't let owner-occupied buy these houses?

Asked by Lakisha, San Jose, CA Wed Sep 26, 2012

Help the community by answering this question:

+ web reference
Web reference:


Grace Morioka, Agent, San Jose, CA
Wed Sep 26, 2012
Hi Lakisha and thanks for your post.

I am going to assume that you are referring to some auction homes on Auction.com where the request is for investors only. When you see this there are usually two reasons for the requirement:

1. The home is in a state of disrepair (or the condition cannot be verified) and a mortgage company will not provide a loan for the home AND/OR
2. The home requires a buyer who can purchase the property with cash only.

Also, more often the not, when a home's condition is questionnable or the occupant refuses to leave or allow entry into the property, the home seller (which can be the bank or a private seller or institution) would prefer a buyer who is familiar with these types of transactions and is in a position to deal with the eviction, the damages, and the renovations that will be required to make the home saleable.

Now, if you have cash and can buy the home, but want to live in the property, then you can certainly qualify as an investor. However, you should be aware that the home's condition will probably require major renovations and the seller is not providing any warranties or guarantees (implied or stated) that the home is in livable condtion. Also, you should be prepared to deal with an occupant that may not want to leave the property.

In any circumstance, you should be prepared (if you really want this property) for, at the very least, a cash purchase of the home, possible legal issues with tenants, and extensive repairs. If these are not at all daunting to you, then you can certainly consider the purchase for yourself, but there are risks, and you should be aware of these before "leaping" into the auction. Talk with an attorney and your trusted Realtor for more help!

Good luck!
Grace Morioka
Allison James Estates and Homes
2 votes
Ruth and Per…, Agent, Los Gatos, CA
Wed Oct 3, 2012
Hi Lakisha

Thanks for your questions, clearly you have asked a few on the board.

1.) At Auction on Court Steps you buy the property with cash and inherit IRS and other County / State
dues and liens. A private individual who can bring cash and buy is allowed to do so. It is Open
Auction on court steps, investors, owner occupants, REITS, partners, LLCs etc , everyone looking to buy or invest is buying. Of course if there are tenants in the property you inherit them and their lease.

2.) In the event the property has not sold on court steps it riverts back to the bank and is deemed REO, after which it can be put on the MLS.

Banks prefer an As Is sale, and like an investor with Cash who is not going to ask for
loan contingency or repair and inspection contingency and can close in 1-2 weeks.

Let me know which lender can close in 1 week, unless it is an Investment Banker or All Cash.

I have a few REO properties for you; where we can write an All Cash Offer or A No Loan
and No Contingency offers, do call me.

Good luck
Web Reference:  http://ruthandperry.com/
1 vote
Juliana Lee, Agent, Palo Alto, CA
Wed Oct 3, 2012
There are two situations I can think of which would prevent you from living in a home you bought.
1.) The home is leased to a tenant or occupied by someone. If it is unlawfully occupied the people can be evicted but it can take time. In some cities with rent control laws it can be very difficult to get a tenant to leave a house you just bought.
2.) The home could be classified as senior housing with a HOA which prevents "young" people from living there.

Most likely, you have encountered properties for which a normal mortgage could not be obtained. An investor desiring to put his own time into the property to maximize his profit is the expected buyer. There may be other situations which would prevent an "investor" from turning his property into owner-occupied, but none come to mind.

Juliana Lee, MBA, LLB
Top 3 agent nationwide at Keller Williams
Over 20 years experience
Web Reference:  http://www.julianalee.com
1 vote
Brad Gill, Agent, San Jose, CA
Wed Sep 26, 2012
Hi Lakisha,

First of all, it's difficult to tell exactly what you mean by "REO properties at auction." REO's are homes that have gone through foreclosure, were not purchased through the County Trustee's Sale (Foreclosure Auction) by any investors, and therefore became repossessed by the lenders that held deeds of trust against their title - Real Estate Owned (REO) by a bank/lender.

So, if you're referring to the practice by listing agents or auction companies of offering properties that have been foreclosed, and are now REO, to cash buyers only, then it is most likely due to the condition of the property. Most conventional lenders will not lend against homes in major disrepair...however, there are some programs such as FHA's 203k rehab loan that will allow a buyer to purchase a property in disrepair and allow for the cost to repair and improve the home to be added into the loan amount.

Unfortunately, most lenders selling their REO's do not want to be tied down in a purchase contract with a homebuyer receiving such a rehab loan program as they are very lengthy escrows...cash buyers in these circumstances usually win out against their competition. And, in terms of offers made on REO properties in good condition, investors often beat out offers made by those intending to occupy the property as it all comes down to whoever submits the "highest and best" offer...sometimes the highest offer is not the best, especially if the buyer making the offer is only putting a small % down.

And if you're referring to purchasing a property that is in foreclosure, and has yet to become REO, then Thomas Feng gave a great answer below. A quick addition to Thomas' answer would be that there is no title insurance available through a trustee's sale at the county foreclosure auctions which makes it very risky for anyone, even very experienced investors, to purchase homes at the public foreclosure auction.
1 vote
Elena Talis, , Palo Alto, CA
Wed Sep 26, 2012
In this context it seems that investors are referred to as people with funds who don't intend to occupy the property immediately. It may be the case that the property is not in habitable condition or is occupied by a tenant or a former owner.
Web Reference:  http://talisrealestate.com
1 vote
Thomas Feng, Agent, Cupertino, CA
Wed Sep 26, 2012
REO properties are not sold at auctions. A home becomes a REO if it does not sell at the auction to a buyer,the bank has to then buy it back, this is when it becomes a REO property.

Owner's can definitely buy homes at auctions just like banks can. However the only way to purchase at an auction is with cash. So what some people do is bring money checks with them in the form of $100,000's, $50,000, $10,000 and so on.

Remember that most of these homes are in bad condition with no termite or property reports to speak of. Also, if the owner is still living there and refuses to move you will have to go through an eviction process as well to get them out.

If you have further questions on how to work a deal like this give me a call at (408) 840-3852 or Thomas.Feng@gmail.com
Web Reference:  http://BayAreaConnect.com
1 vote
Tina Lam, Agent, San Jose, CA
Wed Sep 26, 2012
They are not shutting owner-occupied out just because they will owner-occupied. It is because investors are more likely to be able to handle these REO properties. For the REO properties to be sold in auction
1) They are currently occupied either by the previous owners or existing tenants. The new owners have to do eviction.
2) They require all cash.
3) They are in such a bad condition that they aren't be sold through regular channels for decent price. Major renovation is needed.
Either one of these criteria usually turn off home buyers. As such, investors are better equipped to close the sale and handle such properties.
1 vote
Ron Thomas, Agent, Fresno, CA
Wed Sep 26, 2012
Where did you hear of this happening?
I doubt that you can document this.
I have seen where Banks favor CASH offers; and CASH offers usually come from INVESTORS:
But there is nothing illegal or unethical about that.

Ofg course, the houses that garner CASH offers are usually fixers, and many Lenders will not deal on a fixer, (such as VA and most FHA).

Keep trying; don't get discouraged.
1 vote
Bill Mccord, Agent, San Jose, CA
Wed Sep 26, 2012
In order to provide a useful reply the question needs to be clear and unambiguous. Your question meets neither of these parameters so has collected answers based on assuptions of what you are actually asking.
The simplist way to ensure useful answers is to provide details of an example which inspired the question i.e. a personal experience, an MLS Listing address, newspaper article etc.
Bill McCord
0 votes
charles butt…, Agent, san jose, CA
Wed Sep 26, 2012
Thank you for your question, Lakisha:

Currently, Bank owned (REO ) properties are listed with REALTORS for sale to the general public and owner occupants are often given preference over investors.

There has been talk among some politicians, and some "trial balloons" of selling large blocks of these REO properties to large investors. Currently, as far as I can tell this is nothing more than just talk, and "trial balloons" among politicians.

I suspect some politicians see the sale of large blocks of REO properties at below fair market values to politically well connected investors, as a way to reward political donors and other well connected friends and lobbyists of those politicians.

Currently this just seems to be talk among politicians and it does not seem to have gone beyond that stage..

Thank you,
Charles Butterfield MBA
Real Estate Broker/REALTOR
American Realty
Cell Phone: (408)509-6218
Fax: (408)269-3597
Email Address: charlesbutterfieldbkr@yahoo.com
0 votes
Lakisha, Home Buyer, San Jose, CA
Wed Sep 26, 2012
If I buy a house as an investor, would I occupy and live in the house after the sale? (the sale is specific is for investors only)
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more