You may have seen this statement in the remarks section of property descriptions and 
purchase and sale agreement: “This property is being sold subject to 24 CFR 206.125”. REO sellers are required by HUD to comply with this regulation upon the acquisition and resale of the property. The regulation pertains to properties that were subject to a reverse mortgage. Reverse mortgages are sometimes known as Home Equity Conversion Mortgages (HECM). Reverse mortgages are available to qualified borrowers over 62 years of age often the properties were transferred back to the lender due the death of the owner rather than as a result of a financial or fraudulent situation. It is likely that property is currently an REO because of the drop in in the value of homes since the peak of the market when some lenders were aggressively marketing reverse mortgages. The expectation at that time was that values would continue to increase. These REOs typically don’t have any owner occupant or NSP buyer restrictions when they come on the market. There are a couple of things to note with them. They generally will not sell the property for less than the asking price which is usually an as-is appraised value established by an FHA roster Appraiser. They are sold As-Is at the time of closing with no repair reimbursements or allowances. They won’t pay for home warranties. Home inspections and the connections of utilities for inspections will be at the buyer’s expense. Also the seller will not contribute to buyer’s closing costs. They should be viewed as soon as they come on the market because some of them are very good values and end up having multiple offers on them.
