Getting a great deal is everyone’s wish when purchasing a home. After all, who doesn’t want to have instant equity in their purchase. I have compiled a list of questions that may answer your questions and take some of the fear out of buying a bank owned property.
Q: What is a REO property versus a Foreclosure Property?
A: The term REO (Real Estate Owned) means the property is in possession of a lender as a result of foreclosure or forfeiture. Foreclosure is the process where the homeowner has defaults in payments to the bank (mortgagee). The mortgagee then follows legal actions to end the homeowner’s rights to the property. Forfeiture is more of a voluntary process by the homeowner to give back the property to the mortgagee often times through a Deed in Lieu (DIL). Foreclosure properties and forfeiture properties are both considered REO properties and will be referenced as the general term, REO.
Q: Can anyone buy a REO (Real Estate Owned) property?
A: Yes! However in many cases, owner occupants are given an exclusive period when they can negotiate without having investors as their competition.
Q: Can’t I get a better deal if I just buy it at the sheriff sale?
A: Maybe; it’s similar to calculating the odds of winning on slot machines. Here are the pros and cons.
- Sheriff sales allow you to bid on the property prior to it going on the market.
- You may be the successful bidder by just meeting the minimum bid.
- You can see your competition since everyone has to be present to bid.
- No inspections and no interior access can be gained – you can only trespass, peak in the windows. You don’t have the ability to perform home inspections, so you can easily be blindsided by termites, discoloration, structural issues, etc.
- Just because you’re the winning bidder, it doesn’t mean you own it! You’re the winning bidder, you happily drive to your new property, and you find someone inside. Guess what? The people living in your house have squatter rights and you have to legally give them until the Confirmation Period expires before you can legally proceed by taking possession. This process could take anywhere from 30-90 days after you’ve already won the bid at the sheriff sale.
- Liens, liens, and more liens. The liens aren’t disclosed and they become your responsibility as the new owner. Liens have a way of diminishing profits considerably depending on what you uncover.
Q: If I buy a REO property will I get stuck with a property that has a bunch of liens?
A: REO properties are almost always sold with clear title and free of liens. However, some liens can be recorded at any time – such as a mechanics lien. The seller’s title companies specialize in REO properties as well so they are well versed with clearing title. When liens are found the title companies work directly with the mortgagee/servicer to clear or settle the liens. Once the title is clear, a closing can proceed. I always recommend purchasing Title Insurance. This insurance is a nominal fee and it protects you just in case a lien was later recorded or was missed.
Q: How much do I have to pay a realtor if I want to buy a REO property?
A: Nothing! Just like traditional real estate the Seller (Bank) pays both the listing agents commission as well as the buyer’s agent commission. Having buyer representation is a FREE service to you and it is highly recommended. That’s why I think it’s so important for you to have your OWN representation. Its important to have a different agent represent the Seller and represent the Buyer in the same transaction. The agent for the Seller wants to get the highest return for the Seller, the agent for the Buyer wants a DEAL and to purchase it at the lowest price possible. How can one person perform both of those job functions in the same transaction? I don’t believe they can, that’s why we have a listing team and a buying team at my brokerage. Call my office today to be referred to the buying team! Click on the link below and search for foreclosure properties.