The option to buy bank owned properties may appear to be a good deal. These properties are not always in good condition and you may not always be able to buy it for much under the current market price. You need to familiarize yourself with the process of purchasing this type of property before you jump into it.
Real Estate Owned vs. Foreclosure
A real estate owned property is property that returns to the mortgage company if it has not been sold at a foreclosure auction. Many foreclosure auctions do not even receive any bids. Auctions normally commence with a minimum bid that comprises of the balance of the mortgage loan, accrued interest, foreclosure expenses and fees for the attorney. To be able to bid at these auctions, you need to have a bank check for the full bid amount in your hand. If your bid is successful, you obtain the property in an ‘as is’ condition. Someone may still be residing at the property and there may be other liens on the property.
As the amount that the bank is owed is generally always more than the worth of the property, it is unlikely for foreclosure auctions to result in a sale. After the auction, if the property remains unsold, it is returned to the bank and it is at this point that it becomes a ‘real estate owned’ property.
How Do Banks Sell Real Estate Owned Properties?
Once the property reverts to the bank, the mortgage loan is written off. The bank takes care of evicting the current owners or tenants, if that is necessary. The bank may also do some of the necessary repairs. They negotiate the removal of any tax liens with the IRS and they will settle any homeowner’s association amounts that are payable.
Banks all operate differently, but their one goal is to sell the property at the best price. If you make an offer to the bank, you will more than likely receive a counter-offer from them. This is often higher than your price, but this is to show auditors, shareholders and investors that they made an attempt to obtain the best price. If you want the property, you may have to counter their counter-offer. If your offer is accepted, there will still be a clause stating that it has to go through approval and a time period for this.
Prior to submitting an offer, it is a good idea to ask your agent to find out some information from the listing agent. You should find out what repairs the bank has agreed to and if there is a special ‘as is’ form, among other things.
A property that is owned by the bank is not always a bargain. Before you start bidding on one of these properties, make sure that the price you are willing to pay compares to that of other homes in the area. Take into account the amount you may have to spend on renovations, including the time it will take to complete the renovations.