Understanding Bank Owned Homes

June 25, 2009 by · 1 Comment 

If you are looking to invest in any real estate, it is important to fully understand the options that are available. A bank owned property is not usually one you will make a killing on. Here are some simple facts that will help you understand bank owned homes.

How Does a Foreclosure become an REO

A real estate owned (REO) property is one that returns to the lender after a wasted attempt to sell it at a foreclosure auction. Most foreclosure auctions do not end in the purchase of a home. The reason for this is simple. If there was sufficient equity in the home to satisfy the loan, the homeowner most likely would have sold it and paid off the bank, avoiding the foreclosure in the first place. A property generally only ends up in foreclosure when the owner owes more than the property is worth and is unable to keep up with the payments. Foreclosure is the final option.
Foreclosure auctions start with a minimum bid amount that covers the balance of the loan, accrued interest, legal fees, plus any costs associated with the foreclosure itself. To qualify as a potential bidder at a foreclosure auction, you’ll need to have a cashier’s check that will cover the entire bid amount. If you are the winning bidder, you agree to take the property ‘as is’, which may include current tenants or property liens.
Since the amount owed to the bank is usually more than what the property is actually worth, very few foreclosure auctions turn out successfully. The property then returns to the bank and becomes an REO or ‘real estate owned’ property.

REO Property

Once the property has reverted back to the bank the loan no longer exists. From this point, the bank must handle any necessary evictions and arrange for property repairs. The bank will negotiate for removal of any liens and pay off any other balances associated with the property.
As you can imagine, after all this takes place, a bank owned home might not be the ideal purchase for a potential investor. Do your homework before making an offer to a bank. Make sure you are not caught in a bidding war where you may end up paying more than current market value. Purchasing a foreclosure at pennies on the dollar is more of a myth than a reality. Banks are not interested in losing money.

How Do Banks Sell REOs

Every bank may do things a bit differently when selling REOs, but rest assured that their common goal is to make a profit or at least break even. If you decide to make an offer on an REO, be prepared for a series of counter offers. Remember, banks have shareholders, investors and auditors to answer to. They are not going to loosely dump properties at a fraction of their market value.

Another thing to take into consideration is that banks generally sell property in ‘as is’ condition. Be sure to obtain a home inspection and include any needed repairs in your reasons for counter offers. If the bank can see solid proof of the value of the home they are more likely to agree to your terms.
Now that you have a solid understanding of bank owned homes, you will be prepared to view them in their true light, not as the ‘steals’ that many infomercials portray them to be.

About Mike

Mid Florida Investment Properties, LLC owner Mike Calvert has been buying and selling real estate in Central Florida for over 18 years. Get a seasoned investor as your partner for a fraction of the profit. We handle the transaction from start to finish!


One Response to “Understanding Bank Owned Homes”
  1. Hi. I like the way you write. Will you post some more articles?

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