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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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