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So you’d
like to buy a bank owned property? You’ve watched the late-night
infomercials and you’re ready to do the bank “a favor” =
and
take a problem off their hands. Plus, you expect to make "a
killing" in the process. Sounds great and it might just happen, but
first you should take a look at some facts and get prepared. REO vs.
Foreclosure An REO (Real Estate Owned) is a property that goes back to the
mortgage company after an unsuccessful foreclosure auction. You see, most
foreclosure auctions do not even result in bids. After all, if there was
enough equity in the property to satisfy the loan, the owner would have
probably sold the property and paid off the bank. That is why the property
ends up at a foreclosure or trustee sale. Foreclosure sales begin with a
minimum bid that includes the loan balance, any accrued interest, plus
attorney's fees and any costs association 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 your bid. If you are the successful bidd=
er,
you receive the property in "as is" condition, which may include
someone still living in the property. There may also be other liens again=
st
the property. Since what is owed to the bank is almost always more than w=
hat
the property is worth, very few foreclosure auctions result in a successf=
ul
sale. Then the property "reverts" to the bank. It becomes an RE=
O,
or "real estate owned" property. REO Properties For Sale The ba=
nk
now owns the property and the mortgage loan no longer exists. The bank wi=
ll
handle the eviction, if necessary, and may do some repairs. They will
negotiate with the IRS for 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. A bank owned property might not be a great barg=
ain.
Do your homework before making an offer. Make sure that the price you pay=
(if
you’re successful) is comparable to other homes in the neighborhood.
Consider the costs of renovation, including time to complete them.
Don’t get caught up in a ‘bidding war’ and pay over mar=
ket
value. It’s an old myth that “foreclosures” are a barga=
in.
How Banks Sell REO's Each bank/lender works a
little differently, but they all have similar goals. They want to get the
best price possible and have no interest in "dumping" real esta=
te
cheaply. Generally, banks have an entire department set up to manage their
REO inventory. Once you make an offer to purchase, banks generally presen=
t a
"counter-offer." It may be at a higher price than you expect, b=
ut
they have to demonstrate to investors, shareholders and auditors that they
attempted to get the highest price possible. You should plan to counter t=
he
counter-offer. Your offer or counter-offer will probably have to be revie=
wed
and approved by several individuals and companies. Even once an offer is
accepted, the bank may insert wording like “..s=
ubject
to corporate approval with 5 days." Property Condition Banks always =
want
to sell a property in "as is" condition. Most will provide a
Section 1 pest certification, but not unless you include it in your offer=
and
negotiate the point. They will allow you to get all the inspections you w=
ant
(at your expense), but they may not agree to do any repairs. Your offer
should include an inspection contingency period that allows you to termin=
ate
the sale if the inspections reveal unanticipated damages that the bank wi=
ll
not correct. Even though you agreed to “as is," always give the
bank another opportunity to make repairs or give you a credit after
you’ve completed your inspections. Sometimes they’ll re-negot=
iate
to save the transaction instead of putting the property back on the marke=
t,
but don’t take it for granted. Banks do not want to see a lot of
proprietary disclosures; they are exempt from the California Seller’=
;s
Transfer Disclosure Statement (TDS-14). If there are real estate agents
involved, either representing you or the bank, those agents are required =
to
provide you their disclosure statements. Most banks will not provide
financing on their REOs but it doesn’t =
hurt
to ask. Especially if the property has extensive damage and you are
purchasing it "as is." Making an Offer Before making an offer, =
have
your agent contact the the listing agent and =
ask
the following: Are there anyinspection report=
s?
What work has the bank agreed to? Is there a special "as is" fo=
rm?
How long does it take the bank to accept an offer? How does your agent
deliver the offer? Offers are usually FAXED to the bank. The listing agent
needs your originals. There is no formal presentation. Keep in mind: noth=
ing
happens evenings and weekends (banks are closed). Since there is no
face-to-face presentation to the bank, provide the listing agent with a
pre-qualification or better yet, a pre-approval letter and buyer biograph=
y.
Make your offer easy to accept. Hopefully these tips will manage your
expectations. Remember that REO's sell at pre=
tty
close to full market value and are not the deals presented on late night
television. |