Real Estate Search Direct

In these times many people are curious about the bank owned properties seen everywhere.  So why shouldn’t you buy a bank owned property?

The typical first time home buyer, Homer Buyer, started looking to buy a new home last November.  He checked the Multiple Listing Service (MLS) for his area to see what homes were on the market.

Homer saw that there were a lot of properties listed as Bank Owned or REO properties.  Then there were other properties listed as short sale or subject to lender’s approval.  He saw many that were listed as foreclosures, too.  Other properties that didn’t have these phrases in the listing were usually priced higher.

Homer was confused by all the unfamiliar terms.  He didn’t know what he should be interested in, or what to steer clear of.  He saw many short sale and bank owned properties that were listed much lower than comparable houses in the same area.  He didn’t trust these and thought they sounded too good to be true.

On the other hand, Homer was worried that prices might continue to fall as they have been lately.  He heard that the best way to protect yourself from decreases in the market was to buy well below market value.  Homer wondered if these bank owned, REO, short sale and foreclosure listings could actually be bought at the price listed and far below market value?

So what do you think?  Should you buy a bank owned property?

In some of the cases, Homer was justified in being skeptical about the low list prices.  Properties listed as short sales are actually pre-foreclosures.  These are homes where the list price is less than what is currently owed on the property.  The owner wants to sell in order to avoid foreclosure, but they know they can’t get as much as they owe.

Any offer is “subject to the lender’s approval”  because the lender will have to accept less than what is owed as payment in full for the sale to close.  The problem with these deals is that the lender doesn’t often say what they are willing to accept on a short sale until they have received an offer.

Because the property is in default the foreclosure clock is ticking.  In order to get some offers to give the bank before it is too late, the sellers real estate agent lists the property with a very low price.

There is no evidence that the bank is willing to accept anything near the list price in this situation.  Unfortunately, the low list prices, however unrealistic they may be, have the effect of driving the market prices down.

Bank owned property, on the other hand, has already been through the foreclosure process and now belongs to the bank.  This is also referred to as REO (Real Estate Owned) for the term the bank uses to classify the asset on the ledgers.  In this case the listing agent is hired by the bank to sell the property and the bank is involved in determining the list price.

This means that there is a good chance of getting the property for the list price if there are no higher offers made.  In some cases you may even get the property for less than the list price, even though it is listed below market value.  The closing time is usually less than what is involved in a short sale because the bank is actively trying to sell the property.

For more information on buying bank owned properties and short sales, visit Bargain Network Homes.  There you will be able to search for properties and learn how to make offers on them.  You can find an ad for Bargain Network Homes under the label Promotion in the right side of the page.

Allen Davis
Founder, RealEstateSearchDirect.com

Comments (1) Jan 22 2009

What do you know about the foreclosure process?  Foreclosures are a key component of the real estate market today. Understanding the process will help you to understand what is happening in your market.

Check out an example of the process in California.  Luis is a California homeowner who rents out a bedroom of his home.  His renter found a job in another state and moved out.  Without the income from the rent, Luis couldn’t afford to make his mortgage payment.

Luis had trouble finding a new roommate because he had 3 big dogs and they made the house smell.  When Luis became 2 months past due the lender started calling and sending notices of late fees.  Luis didn’t know what to do.  He couldn’t afford to make his regular payment, let alone late fees on top of that.

After 3 months the lender filed a “Notice of Default.”   This is the beginning of the foreclosure process.  Different states may call it “Lis Pendens” instead of Notice of Default. Luis put the notice in a drawer figuring he would find a new renter at any time and use the security deposit to pay the mortgage.  Luis was in denial as are many people facing foreclosure.

90 days later, Luis still hadn’t found a renter.  The trustee filed a “Notice of Trustee Sale”.  In California 90 days is the minimum period between filing the Notice of default and the Notice of Trustee Sale.  The Trustee Sale was scheduled to be held 21 days later.  Again, this is the minimum period in California, other states may differ.

When the day of the sale came, the property was put up for auction.   At the auction anyone can purchase the property as long as they bid at least the amount of the mortgage in default including all fees and late charges accumulated.  Because the value of the property had dropped so much lately, nobody bid on the property.

Now the house became property of the lender since nobody bought it at auction.  This is called an REO (Real Estate Owned) property.  The lender didn’t really want the property, but foreclosure is the only recourse they have to try to get the money owed them.

Now the bank has a property that they can’t use and they don’t have the money they lent for it.  On top of that, the bank is required to keep money in reserve  for each property they own, plus they have to pay property taxes on it.

If it was just  Luis’ property the bank wouldn’t be in bad shape, but they have thousands of properties now.  They have to get rid of  some to stay in business.

So the bank listed the property for sale with a real estate broker.  The property was listed for well under what Luis originally owed.  The bank didn’t care.  They could write off the loss, and they had to get rid of some property for whatever price they could get.

How can you buy a property in the foreclosure process?
Read More

Comments (0) Jan 15 2009