Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. 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.

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 during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  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 liens,and back taxes, and even current occupants that need to be evicted. 

A REO property, 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. The buyer will be responsible for taxes incurred since the bank take over. Do be aware that REO’s may be exempt from normal disclosure requirements.  In Illinois, for example, 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. It is very important that you hire a home inspector to give the property a thorough going over.

Is it a bargain?
It’s commonly assumed that any REO property 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 property, we 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 foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a REO department that I’ll work with in buying your REO property from them.  Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.  Before making your offer, I will contact either the listing agent or REO department at the bank and find out as much as I 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”, I will be sure and include an inspection contingency in your offer that gives us time to check for hidden damage and terminate the offer if we find it.  As with making any offer on real estate, we’ll make your offer more attractive if we can include documentation of your ability to pay, such as a pre-approval letter from a lender. Most REO properties now require a pre-approval letter with the offer. After we’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 the 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. Know this and expect it, to avoid undo stress of anticipation.

Half price dream house?                                                                                         You may be shopping for a home to live in. This is the perfect opportunity to get a house that may have been on the market for twice as much 2 years ago. Selecting the neighborhoods and the price that your lender has pre-approved for you, will have you on the way to buying much more house than you could afford otherwise. Just tell me what you want! I have access to REO properties in all areas and price points. I will be happy to create a list of REO homes in the areas of your choice. Even in the North Shore communities!