Buying bank owned properties
In the wake of the housing bubble exploding over these past two years there has been a growing interest from potential home buyers in buying bank owned properties. Everywhere a home buyer turns there is someone telling them how they can "cash in" on the foreclosure market. Many times that comes with so called "experts" who want to sell you information, be careful it's easy to pay a higher price than what you bargained for to learn the in and outs of buyer bank owned properties.  The biggest thing to remember is there are no secret formulas. You should never have to pay a realtor to assist you in buying a bannk owned property. Making money buying and selling foreclosures requires a  tremendous amount of effort and research.

What’s an REO?
REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as a property up for foreclosure auction.  When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO’s may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This couldn't be further from the truth.  It is very common for people to buy an REO with the intent to make money off of it only to find out that they now own far more than they bargained for.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale.  There are great properties with money making potential, and many people do very well buying foreclosures, however they require you to do your homework.  But there are also many REO’s that are not good buys and not likely to turn a profit.  An Experienced Buyers Agent can help you determine the potential profit or loss of an REO listing.

Ready to make an offer?
Making an offer on an REO property is very different from any other real estate transaction. Most banks have an REO department that you’ll work with in buying a REO property from them.  Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you will want to secure the services of a buyers agent that understands the process of buying and selling foreclosure properties. NOT ALL REAL ESTAE AGENT ARE EXPERIENCED WITH REO's your Agent willcontact the listing agent or REO department at the bank and find out as much as is known about the condition of the property and what their process is for receiving offers.  Banks most commonly sell REO properties “as is”, without a warrenty of it's condition. Although bank will not make repairs it is still a good idea to include an inspection contingency in your offer to give yourself time to check for hidden damage and in needed to terminate the offer.  Unlike making offers on other real estate, Banks will require you to include documentation of your ability to pay, either a bank letter or a pre-approval letter from a lender.  After you’ve made your offer, you can expect the bank to make a counter offer.  Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  Realize, you’ll be dealing with a process that involves multiple people at the bank, who don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take days or even weeks so be patient.

If you are interested in purchasing a bank owned property contact Mark Dershem at 615-810-1152 to setup a consultation.