Buying bank owned properties
During our Foreclosure Workshops, there is always a lot of interest in buying bank-owned properties. A lot of information, some good and some bad, is floating around about the subject.   Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula.”  The fact is that there are no secrets, and to make money does require effort.  You need to read books and attend seminars (particularly our free Foreclosure Workshop).

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 trustee's sale, you must outbid other investors who attend these public auctions.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is.”  That could include existing senior liens and occassionally current occupants that need to be evicted.  A 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 an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a 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 a 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 many people do very well buying REO's.  But there are also many REO’s that are not good buys and not likely to turn a profit.  During our free Foreclosure Workshop, we'll teach you how to distinquish the difference.

Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them.  Sometimes, the REO department will sell the property itself.  Other times, the REO department will use a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you’ll want to contact either the listing agent or REO department at the bank and find out 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 that gives you time to check for hidden damage and terminate the offer if you find it.  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 their 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 days or even weeks.

 If you are interested in attending one of our free Foreclosure Workshops in your area, please click on the appropriate schedule and register.