So you'd like to buy a bank-owned property? Perhaps you've watched the infomercials, or listened to the newscasters spouting stories of woe about the burgeoning amount of foreclosures, and you're ready to do the banks a "favor" and take the problem off their hands. Plus, you expect to make "a killing" in the process. Sounds great and it just may happen, but first you should take a look at some facts and get prepared. REO vs. Foreclosure A REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. Today, most foreclosure auctions do not even result in bids. Most homes do not have equity in the property to satisfy the loan, otherwise the owner would have probably sold the property and paid off the bank. Foreclosure sales begin with a minimum bid that includes the loan balance, any accured interest, plus attorney's fees and any costs associated with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of the bid. If you are the successful bidder, you receive the property "as is" condition, which may include someone living in the property. There may also be liens against the property. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts " back to the bank. It becomes an REO, or "real estate owned" property. REO Properties for Sale The bank now owns the property and the mortgage loan no longer exists. The bank will evict the owners, or tenants, and may do some repairs. They will negotiate with the IRS for the removal of tax liens and pay off any homeowner's association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property. Buying bank-owned may not be a great bargain. There is much to consider, like comparable price, cost of renovation, different procedures and contractual terms for completing the sale. Most REO properties are sold in "as is" condition. The prospective buyer will have an inspection period that allows him to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct. It is very important that a buyer work with a seasoned professional that understands the REO buying process. Locating bank owned properties is best accomplished through the Multiple Listing Service (MLS). Banks will list their properties with real estate brokers just like most Sellers. Finding and making an offer on a property before it is listed is very difficult. Most banks will not consider pre-list offers, and usually require the listing agent to hold all offers for up to 5 days at the beginning of the listing period to allow more opportunity to get a highest and best offer. Making an Offer It is important that a buyer be pre-approved for a loan prior to viewing availabe bank owned properties to know what he can afford to purchase. The following items are necessary for submitting an offer: - A pre-approval letter from a lender
- A deposit check
- California Residential Purchase Agreement
In addition to these items, banks will provide their own contracts for the buyers to sign. Each bank is different on these procedures. Knowing how an individual bank works, and then proceeding along their desired system will increase the likelihood of your offers acceptance. Banks generally take longer than a standard sale to respond with an acceptance. Often their are multiple offers on the same house, and only one will "win." Having the "Best" offer is not always the highest price. Knowing what the risks are to a bank is very important in a multi-offer property. Hopefully these tips will manage your expectations. Remember that REO's sell at pretty close to full market value and are not the deals presented on infomercials. |