Roberta Williams - Lock
Principal Broker
What is your home worth?
Roberta Williams - Lock
Bank Owned Properties - So You're Looking for a Bargain?
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The term "Real Estate Owned" or REO to used to define the properties that revert back to the bank after an unsuccessful foreclosure auction.
FORECLOSURE
When a homeowner is one day late for a payment, the mortgage becomes delinquent. After 30 days, the mortgage is in default. After 90 days late, the bank turns the loan over to their Foreclosure Department unless the homeowner has worked with their Loss Mitigation Department. After 90 days late, the bank can initiate the foreclosure and schedule a date for the foreclosure sale. The foreclosure sale begins with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs associated with the foreclosure process. Most foreclosure auctions do not even result in bids on the property. After all, if there was enough equity in the property to satisfy the loan, the homeowner would have probably sold the property and paid off the bank.
REO PROPERTIES FOR SALE
When the property reverts back to the bank, the mortgage loan no longer exists. Banks are not in the business of owning real estate, so these properties are sold on the open market. The bank will handle the eviction if necessary, and may do some repairs to qualify the property for new financing. The property will be sold free and clear of any encumbrances, including tax liens and homeowner's association dues. The buyer will have the opportunity to conduct a professional home inspection, and will receive a title insurance policy.
ARE YOU GETTING A BARGAIN?
A bank owned property may, or may not be a great bargain. As your Real Estate Broker, I will complete a market analysis on the property before you make an offer. You must consider the cost of renovation, including time to complete them. The "bargains" go fast, usually with multiple offers. Don't get caught up in a "bidding war" and pay over market value. Watch the market closely for the opportune property.
MAKING AN OFFER ON A REO
Each bank has their own procedures, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Due to high REO volumes, banks have gone "digital" and the negotiation process is very black and white. It is not possible to submit a buyer's appeal, rationalizations, or justifications relating to offer price and offered terms.
Offers on bank-owned properties are written on the standard purchase agreement. As a general rule, REO Departments and Asset Managers require that offers be submitted by the listing broker on the lending institutions "Offer Worksheet" or the online equivalent. This is aimed at simplifying the process for the Asset Manager, who will more often than not, have a large number of assets under management and often in multiple states with vastly different forms. These worksheets will have the "basics" only, such as price, terms, concessions, and closing dates. The offer will be "verbally" accepted by the bank, and may be accompanied by a worksheet or email which will be documentation of an accepted offer. REO Departments and Asset Managers give the "ok" and then go to their managers for signatures on the standard Oregon Sale Agreement.
PROPERTY CONDITION
Banks always want to sell a property in "as is" condition. After the offer is accepted, the buyer will have the opportunity to conduct inspections on the property at the buyer's expense.
Often times the property will not have utilities turned on. Giving proper notice before an inspection will ensure that the water, electricity and natural gas are on so that all systems of the property can be properly inspected. As a rule, banks will correct repair issues that are required for a new loan on the property. REO Asset Managers are very familiar with what constitutes a lender-required repair, and will not approve "cosmetic", "dated", or "wear and tear" related issues. Addressing non-lender required issues can be accomplished by raising the price and having the seller (bank) "credit back" for the cosmetic issue. Generally, these repairs will not be authorized to be completed prior to closing.
For lender-required repairs, the bank's procedure is to bid the repairs. Generally, for repairs under $1,000; the bank will get 1 bid. For repairs $1,000 - $5,000; the bank will get 2 bids. For repairs over $5,000; the bank will get 3 bids.
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 will re-negotiate to save the transaction instead of putting the property back on the market.
Buying a bank-owned property can land you a great house. I will help steer the course to assure the experience is a successful one.
