Bank owned real estate is referred to by many names including: real estate owned, REO, and bank foreclosures. When lenders foreclose on properties they are initially placed for sale through public auctions. If they do not sell at auction, they are returned to the bank who assumes responsibility for the sale.
Bank owned real estate is sold directly through each lender’s loss mitigation division or their designated realtors. Properties can be listed through bank or realtor websites. If agents handle the transaction, buyers submit purchase offers to the realtor who presents it to the lender. If bank loss mitigators supervise the sale, buyers provide purchase agreements to the servicing mortgage agent.
Foreclosed residential and commercial properties offered through public auctions are usually priced lower than properties sold through banks. When buyers present offers at auctions they must be prepared to provide funds within 24 hours. If creditor or tax liens are attached or if evicted tenants reside in the property, buyers are responsible for negotiating lien removal and tenant eviction.
Once banks regain ownership they remove liens and commence with eviction if necessary. These costs are included in the purchase price. While bank REO homes usually have a higher price tag, buyers can avoid the costly and unpleasant procedures which can often take several months to resolve. Additionally, buyers can take immediate possession of the home which allows them to quickly move into the residence or place it on the market as a rental home.
REO properties sold through banks are often priced 10- to 20-percent below market value. When repairs are required, lenders adjust prices accordingly. Qualified borrowers can apply for additional funds within their mortgage application to make necessary home improvements.
A large percentage of bank foreclosures are located in areas that have experienced a high level of mortgage default. The Department of Housing and Urban Development currently offers grant money to individuals and investors under their Neighborhood Stabilization Program. Qualified investors can apply for a maximum of five NSP grants, while home buyers are limited to one grant. Eligibility requirements and grant criteria are provided at HUD.gov.
While buying real estate foreclosures is similar to purchasing homes listed through realtors, there are a few differences. Individuals who have never purchase REO properties should take time to become educated about the process. Many realtors offer complimentary seminars which cover the pros and cons of investing in distressed real estate.
Borrowers must obtain preapproved financing prior to placing offers on bank owned properties, unless buying houses with cash. Mortgage providers rarely reduce the asking price unless home inspections reveal necessary repairs not previously reported. Banks have already lost considerable income by engaging in the foreclosure process. Their primary goal is to recover as much of their initial investment as possible.
Real estate owned houses often make an exceptional primary residence, vacation home, or investment property. However, if lenders refuse a reasonable offer, buyers should be prepared to walk away. Considering there are more than 4 million foreclosure homes for sale, buyers can easily find another suitable property.
One option to locating cheap homes for sale is to seek out private real estate investors that specialize in buying and selling distressed property. Some investors buy entire bank portfolios consisting of multiple properties. Buying real estate in bulk allows investors to obtain wholesale pricing. Properties are sold in as-is condition so investors can pass along savings to buyers.