Bank Owned Real Estate (REO's-Real Estate Owned)

Want to buy a bank owned property? Check this out first!!!!  A REO (Real Estate Owned) is a property that goes back to the lender of record after an unsuccessful foreclosure auction.

A Foreclosure sale begins with a minimum bid that includes the loan balance, all accrued interest plus legal fees and any costs associated with the foreclosure process. In order to bid at a foreclosure auction, you must have a $10,000 cashier's check in your hand and the full amount of your bid is due within 24 hours after the sale has ended. As the successful bidder, you obtain the property in "as is" condition and that can include a tenant still occupying the property.  Recent legislation can prevent you from having the tenant removed and you may have to honor their lease with the previous owner so do your homework on this one before bidding.

In today's real estate arena the amount owed to the bank is almost always more than the value of the home resulting in very few successful foreclosure auction sales. Hence, the property "reverts" back to the bank and becomes an "REO" or "real estate owned" property.

REO Properties For Sale

The Bank now owns the property and the real estate loan no longer exists. The Bank will handle the eviction (if necessary) and may do some repairs. They will also negotiate with the IRS for removal of any tax liens which can take up to 6 months to achieve. If you buy a REO property, you will receive a Special Warranty Deed, Title insurance and the opportunity to inspect the property.

A bank owned property might not be a great bargain. Do your homework before making an offer. Compare the price that you will pay (if successful) to other home sales in the surrounding neighborhood.  Repair costs including time to complete them should also be considered plus factor in potential unknown issues. Avoid becoming involved in a ‘bidding war’ and paying over market value---very common in today's fast moving market.

How Banks Sell REO's

Each bank/lender works a little differently but they all want to get the best price possible and have no interest in giving away the property. If the bank is very large they will have an entire department set up to manage their REO inventory.

After you make an offer to purchase, banks usually present a "counter-offer" and/or ask for your "highest & best" offer especially when there are several bidders on a property.   The Bank's counter may be at a higher price than you expect (especially the first week a REO is listed for sale) but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer but when multiple offers exist you may not get the opportunity to make an additional counter offer.

Additionally, your offer will have to be reviewed and approved by several individuals and/or mortgage insurance companies.  Although an offer is accepted the bank may insert verbiage like “contingent upon corporate approval within 5 days" plus include there own "AS IS" addendum.

Property Condition

Banks always want to sell a property in "AS IS" condition. Most will provide a pest inspection but not unless you include it in your offer and insist upon it. They will allow you to all the inspections you want (at your expense) but generally do not agree to do any repairs unless required by the buyer's lender.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unforeseen damages that the bank will not correct.

Even though you've agreed to “AS IS" always give the bank another chance to make repairs or give you a credit after you’ve completed your inspections.  Occasionally banks will re-negotiate to save the transaction instead of putting the property back on the market---just don’t count on it.

Most banks will not provide financing on their REOs but they may give a seller concession for the buyer's loan costs.  Many banks will also include a One-Year Home Warranty on the property but you have to ask for it in your purchase offer.

Making an Offer

Have your agent contact the the listing agent and ask the following before submitting a purchase offer:

• Are there any inspection reports?
• Has the bank agreed to make any repairs?  Will they offer a seller's concession for the buyer's loan costs?
• Is there a special "as is" form?
• How long does it take the bank to accept an offer? Are there any other offers?  If so, how many?

Offers are usually FAXED or emailed to the Bank's agent.  There is no formal presentation.  Keep in mind---nothing happens evenings and weekends (banks are closed).  It's a good idea to expect a response time of 4-5  business days to your offer. Since there is no face-to-face presentation to the bank you should provide the listing agent with a Loan Status Report (LSR) plus proof of funds. Make your offer straight forward and easy to accept.

Remember that REO's are selling very close to full list price and often thousands over the asking price---depending on the location of the property and multiple bidders.  REO's are not always the deals presented on late night television.

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