7 Important Tips for Buying Bank-Owned Properties
Whether you’ve been saving up to purchase a primary residence, or you’ve been kicking around the idea of purchasing a second home (like a vacation home, or rental/investment property), you may want to take a look at some of the bank-owned properties on the market.
There are many advantages to buying bank-owned properties – also known as REOs (Real Estate Owned). There is also a lot to consider and keep in mind when buying a bank-owned property — and it is more than what you see on infomercials and other advertisements. By taking the time to learn about the process, you can decide if this is the right type of transaction for you.
What are bank-owned properties/REOs and how do they differ from foreclosures?
REOs are properties that are returned to the bank once they have gone through an unsuccessful foreclosure auction. Generally speaking, when a property goes to a foreclosure auction, the amount due on the home includes the amount due on the mortgage, as well as any late fees, attorney fees, tax liens, and any other costs associated with the foreclosure process. If you buy a home in pre-foreclosure, or at auction, be prepared to pay for any liens that have been place on the house, as well as be willing to evict anyone living in the property. In many cases, the foreclosure auction receives no bids, which is why it is returned to the bank for the bank to sell.
Once the property is returned to the bank a few things then happen. Now that the bank owns the property, a mortgage no longer exists. The bank will negotiate with those who hold liens on the property – like the IRS, outstanding property taxes, and homeowners associate dues, etc., to have the liens removed. This should insure a clear title when the property is sold. The bank will also handle the eviction process clearing the way for an easier sale.
What you need to know when purchasing an REO property?
- There may be some REO properties that are already listed in your local MLS. If so, you can contact the listing agent directly. If it is not publicly listed, you will need to contact the bank directly. This can be done either by calling the bank and talking to the loss mitigation department, REO Department, or asset management department – the department names will vary. With the influx of bank-owned homes currently on the market, it may take a while to get in touch with someone that can help you. You can also overnight a check to the lender for a percentage of the sales price to get their attention (with the amount to be held in escrow until the property closes, or returned should you not proceed with the sale). Just keep in mind that you should be prepared and able to buy the property you are inquiring about.
- Keep in mind that a property that is bank-owned does not mean that the bank is willing to give it away. They are looking to make the most money possible on the deal and recoup some of their losses. If you find a bank-owned property that you are interested in, take the time to research recently closed sales in the area to make sure you are not paying more than what the fair market value is for the home. This is also good information to have if you are bidding against other parties – you don’t want to bid yourself out of a good deal.
- Another thing to consider, if you decide to make an offer, is to take the time to have your own title check conducted through a title insurance company. This will insure that all liens, and title claims have been taken care of and there are no surprises. Though this should not be the case when purchasing bank-owned properties, it is always better to be safe than sorry. Often times there are more than one mortgage, back taxes, mechanics liens, on the property and one of these claims could easily have fallen through the cracks.
- Don’t be afraid to try to negotiate. Since the lender already owns the property and they are more than likely anxious to sell it, they may be able to take care of some of the closing costs, or possibly reduce the asking price, interest rate, or lower the down payment. Keep this in mind when making the offer – especially if the home is in need of repairs. If you decide to put in a lower bid, make sure you can substantiate your reasons for doing so by providing repair estimates, pictures and other documentation as needed.
- As mentioned above, get an inspection as that could help in your negotiations. In many cases, the previous owners of the property were already struggling to make the payments and most likely did not have the funds to do regular maintenance on the property. When making the offer, you can add an inspection contingency that will allow you time to have any inspections done and the ability to walk away should the cost to repair be too great. In some cases, the lender may decide to negotiate or give a credit at closing because they don’t want to have to repeat the process with the next potential buyer. Most properties are sold “as is” but that doesn’t mean you should let yourself get stuck buying a money pit if you can help it.
- Anyone can buy an REO – not just investors. With tightening restrictions in the lending market, be prepared to put money down — do not expect to easily find 100% financing. You will also need to have a pre-qualification letter, or even better, a pre-approval letter submitted with your bid as it helps show the bank you are serious about purchasing their property. In the case that a buyer’s existing home has a great deal of equity already, it may be possible for the buyer to use a line of credit from their bank to help purchase the property. If this is your first home, be sure to check your credit report and fix any errors before getting approval for a loan to insure the best rate and terms possible.
- Finally, you may want to consider working with a Realtor who has experience in REO property sales and prepare to be patient. One of the tricks to buying an REO by state is to find the person at the bank who can make the decision to sell the property. This can sometimes take a few days, up to a few weeks. Some of the larger banks have larger departments that deal with all REO sales, while others that are not as large do not. Also, banks are not open on evenings and weekends, so if you make an offer on a Friday afternoon at 6 p.m., don’t expect to hear anything back until the next week.
If you decide this is the route you’d like to take, remember, do your research, get your inspections, and be patient and you may get a great deal! GoHoming.com allows buyers to make an offer on REO properties the traditional way as well with our “No Time Limit Bidding” method. Read more about the REO buying or bidding process.
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Thanks for the tips
Thanks for a great article! As an experienced bank-owned (REO) list agent (Idaho) with OCWEN, it’s my daily routine to analyze and compare prices of bank-owned, short sale, and ‘normal’ list offerings. It’s still staggering to me, to see all of the high-values at low pricing the bank-owned (REO) properties offer! Ironically, because of high-quality web sites, particularly gohoming.com by Altisource, the search process is easier and less confusing than the traditional methods. Follow the advice of this article and search the gohoming web for your opportunity to own the American dream…
Thanks so much for the great advice and endorsement!
Youve certainly got a way of reaching people that I havent seen very often. If most people wrote about this subject with the eloquence that you just did, Im sure people would do much more than just read, theyd act. Great stuff here. Please keep it up.
Thankyou for this outstanding piece. I look forward to more like it in the future. Thanks again
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