Real Estate News for Thursday, April 19th, 2007

All about REO's and Bank Owned Properties!

Have you heard of bank-owned, lender-owned, or REO properties? If you are an investor, sometimes these properties can be a really great deal. The other day, I was talking to some people who seemed to be a little misinformed about what bank-owned properties were. They thought that bank-owned properties were "homes in the foreclosure process and that buyers were required to have all cash bids for the entire sales amount." Just so you guys all know, this is absolutely not true. REO's or Real Estate Owned Properties are properties owned by a bank. These properties have gone through the foreclosure process, but no one successfully bid on them for purchase.

According to BiggerPockets.com, there are many advantages to buying REOs.
1. All liens against the property are removed once it becomes an REO, and taxes are paid.
2. Unlike properties at foreclosure auction, REOs can be inspected prior to contract, and are listed with real estate agents.
3. While many foreclosures are often in deplorable condition, REOs are typically restored to at least a readily salable condition by the lending bank.
4. The bank or lending institution that owns the property will often offer financing with better deals then they would offer on traditional properties.
5. The bank or lender that owns the property will often provide an allowance for certain repairs.
6. REO properties are usually listed on your local MLS (multiple listing service), or can be located by going directly to your local REO bank’s website.
7. While in hot markets, you may not see a difference in price between an REO and a typical property, during slower markets, you can pick up an REO at discounts to the property’s actual value.
8. Lenders and banks do not like holding REOs on the books, and try to get rid of these as quickly as possible.

RealtyTrac, does a great job of explaining the more about REOs. Foreclosure is a legal process that allows a lender/bank to sell or take possession of a property due to non-payment of a loan that is secured by that property. Properties that have already been foreclosed on are Bank Owned. Although the lender usually clears out any liens on the title, you should still make any purchase offer contingent on a title search. Also, find out if the lender has made any repairs to the property or if it is being sold "as is." The lender wants to recover any money they've put into the property, but you can often make a successful offer that's still substantially under the market value. There is no set timeframe within which the banks must sell their REOs; however, banks often want to get REOs off their books rapidly. As a result, many REOs sell quickly. The only exception is if there is a "redemption period" for the owner to buy back the property after it is repossessed by the bank. State law dictates if there is any redemption period. The bank will typically wait until the end of any redemption period to sell the property. Keep in mind that sometimes contacting the lender can be frustrating, as the main purpose of a lender is to loan money, not to sell property. So even though the bank may have a department that handles bank-owned property for sale, that department may be hard to track down.

Still not convinced? Here's more REO vs. Foreclosure Info. An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale. Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

Buyers are seeing many more homes for sale today with terms like REO, bank owned, foreclosure, short sale, and others. All these terms have something to do with a bank, click here for an explanation for each. You might be asking yourself, "how do I buy a bank owned property?" Keep reading below for great buying tips.

RealEstateABC.com shows buyers how to own an REO property. Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory. Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer. Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days." Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs. Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct. Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted. Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements. Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is."

Well, I hoped we've all learned something new today!

~Tina Jan~
Coldwell Banker Kivett-Teeters
1655 E. Sixth St.
Beaumont, CA 92223
Work: 951-845-5520 Ext. 105
Fax: 951-845-4916
Cell: 909-446-2666
Toll-Free: 1-877-TINAJAN
tina.jan@coldwellbanker.com
www.tinajan.com