Bank REO Properties May be Best when Buying a Foreclosed Home
Given the number of foreclosures currently on the market and the buzz
about how much money you can potentially save when buying a foreclosed
property, it is little wonder that so many people are interested. Rather
than buying a foreclosed home at a sheriff's auction; however, your best
option might be purchasing a bank REO property.
A bank REO property is a home that has been acquired by the bank through the
foreclosure process. REO means real estate owned. These are homes that
have been returned to the mortgage company following a foreclosure
auction that was unsuccessful. As surprising as it may be, many such
auctions do not end in the sale of the property. One of the most
frequent reasons is that the minimum bid on the property is too high
because it must include not only the loan balance but also any accrued
interest, attorney fees, etc. In most instances, the amount that is owed
to the bank is more than the actual value of the home. In the event the
minimum bid for the property is not met at the auction, the property
will automatically revert back to the lender and become a REO.
Once the bank owns the property, there is no former mortgage and the
lender will sometimes even take care of matters such as evictions,
repairs and possibly negotiating with the IRS to remove tax liens. This
is one of the many reasons to consider buying a REO rather than bidding
on a property at an auction. Doing so can save you a lot of money as
well as hassle.
If you are going to purchase a REO there is a particular strategy that
should be kept in mind. It is only natural for the bank to want to
secure as much money from the property as possible. They certainly do
not want to lose any money, which means you should be prepared to
negotiate. Once you have made an offer on the home, you should expect
the lender to present a counter-offer. The bank will always try to get
the highest price they possibly can so the counter-offer may even be
more than you are prepared to pay. If that is the case you will need to
counter their counter-offer.
Before you make any offer on a REO property, make sure you are
pre-qualified for a mortgage loan; otherwise, the bank that owns the
property may not even be willing to consider your offer. Becoming
pre-qualified will give you far more negotiating power.
You should also not expect to be able to make a deal for the property
quickly. When dealing with a bank it can take some time for an offer or
even a counter-officer to be reviewed as well as approved. It often
takes several people to provide approval and that can take time. It is
also not unusual for offers to need to be faxed, which can also take
time. When dealing with a REO purchase, face to face presentations are
almost never made. Be patient.
In some cases, banks may wish to sell the property 'as is.' If that is
the case you should be certain that all terms regarding repairs and
inspections are clearly specified. Never assume that the bank will make
any repairs. Insist upon an inspection and if the inspection reveals
serious problems, you can always attempt to renegotiate; provided that
the purchase contract was originally written to be subject to an
inspection. Depending on the bank, they may opt to accept a lower price
rather than deal with the cost and hassle of handling repairs or putting
the house back on the market.
If the bank is not willing to negotiate and your offer is rejected, you
might think about waiting 30 days and then resubmitting the original
offer. The bank may be more willing to consider your offer once some
time has passed and the property still has not sold.
Before you make any official purchase offer, always check to be sure
whether there are any existing inspection reports you can review and
what condition the house is being sold in. You should also find out
exactly how offers will be handled and how long you should anticipate it
taking for the bank to accept an offer.
REO properties can be a great way to purchase a property that has been
foreclosed upon, provided that you know the right steps to take and what
to expect along the way.
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