Buying bank owned properties

There is large amount of interest in buying bank owned properties these days. And there is a lot of information, some good and some bad, floating around about the subject. You just need to know how all the pieces connect to have success in purchasing your property! I have experience in helping buyers purchase bank owned properties.  Contact me  if you would like some help in figuring out this puzzle! 

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 at 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 usually receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted. 

An 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, 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 a chance to make some easy money.  You have to be very careful about buying an REO if your intent is to make money off of it.  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 an 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.  The bargains with money making potential exist, and some people do well buying foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them. Your Realtor should help you find out from the Bank as much as you can about what they know about the condition of the property and what their process is for receiving offers.  Since banks almost always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer. This gives you time to check for hidden damage and the capability to terminate the offer if you don't like what you see in the reports.  As with making any offer on real estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as 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 probably involves multiple people at the bank, and they don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take several days.  If you decide that you would like to pursue purchasing a bank owned property, please give me a call and I will use my experience to help you work through the maze of paperwork!