Foreclosures - Purchasing Bank Owned Properties

Purchasing Bank Owned Properties

Posted on March 17th, 2008 by saman

There are many infomercials that come on 1 am that tell you how to make a fortune with foreclosed and bank repossessed homes. You may be ready to take the plunge and start making money in real estate but it is best to learn some fact about the process so that you can be prepared.

First, it is important to know the difference between properties that are real estate owned properties (REOs) and foreclosure. An REO is a piece of property where possession reverts to the company that holds the mortgage. This occurs after bids have not been met with success. The truth is most foreclosure auctions are not successful. This is because if there is enough equity to take care of the loan in the property, the owner would surely have already sold the home and paid the bank their money. This is the reason that the property goes up for foreclosure and trustee sales.

An initial small bid usually is how a foreclosure sale begins. This minimum bid includes the balance of the loan, accrued interest, and lawyer fees. It also includes any other expenses that go along with the process of foreclosure. You must have a cashier’s check with you for the entire of the property if you will be allowed try and purchase the property. If you find success and purchase the property, you will get the property “as is”. This means that there could possibly be additional liens on the property. There may also be someone who may still be occupying the home.

Most of the time, that a property owner owes the bank is always a lot higher than the true value of the property. Therefore, there are not many foreclosures auctions that result in a successful sale. If there is no sale the property, the bank once again owns the property making it an REO.

Now that the bank owns the property the mortgage loan is gone. The bank can deal with the eviction if one is necessary and may do needed maintenance. The bank will negotiate to pay off and dues and ask them to get rid of any tax liens. An investor that buys an REO property will have an opportunity to investigate the home.

Even so, a property owned by the bank may not be the bargain it appears to be. Research the property before you decide to make an offer. Be sure that the price you pay for a property is comparable to other homes in the same location. Think about renovation cost and the time it will take to complete them. Do not pay higher than the market value. Foreclosures are not a bargain, despite what many are led to believe.

Every bank or lender works in different ways but they still have the same goals. They both would like to get the best possible price and will not get rid of real estate for a cheap price. Most of the time there is a separate department set up to handle a bank’s REO inventory.

When you make an offer to buy banks will usually make an offer to counter yours. The price may be higher than you think but they want to demonstrate to auditors, investors and auditors that they are trying get the highest price they can. Be sure to plan on presenting a counter offer for the property to their counter offer.

This counter offer that you preset will most likely have to be reviewed by different companies and individuals. They will need to approve your offer. If the bank accepts your offer, they may insert such wording in the contract such as “subject to approval”.

Banks want to sell properties that are “as is”. Even if an individual has agreed to “as is” give the bank a chance to make the necessary repairs and or let you receive credit after you have completed the inspections yourself. They may renegotiate to save the sale instead of going through the trouble of returning a property to the market.

Be sure that you have asked the proper questions when contacting the listing agent. Ask about inspection reports, how long a bank usually takes to accept offers on property and what work, if any, has the bank agreed to as far as the property is concerned.

Real Estate Properties usually sell for the full market value so remember that when you think about the “deals” that you see on late night television.