Foreclosure Properties offered by Banks (REO) and the Government

What is REO?

When someone buys a home, they usually take a loan from the bank. In lieu of this loan or mortgage, the bank holds title to the home as collateral till such time the homeowner pays back the loan to the lending institution. If the homeowner stops making their mortgage payments to the lending institution and defaults on the loan, the lending institution can exercise their right to foreclose on the home in order to collect on the amount owed. This home, which the lending institution takes possession of, now becomes the Real Estate Owned (REO) by the lender.

The Lender’s Reality

The lender’s last resort is to gain possession of the property by foreclosing on it. However, the financial goal of the lender is not to own the REO, but to recover the principle loan balance, accrued interest, late fees, penalties, taxes paid (on behalf of the property owner), court costs and attorneys' fees. In most states, the laws are written so that the lender can only attempt to recover these widely accepted standard losses. Keep in mind, that lending institutions (banks for example) are not in the business of owning homes. They are in the business of lending money to homeowners and charging them interest and any possible fees associated with the loan. This is how banks make money.

When the lending institution forecloses on a home, it now holds a real tangible asset, which it does not wish to own. The bank however, does not like to take a loss in disposing the property; but sometimes for reasons beyond their control it may have to take a loss in order to liquidate the asset and turn it back into cash. This REO process presents the potential investor (YOU), a good buying opportunity and a chance to buy the REO at a discount. And sometimes, at a very deep discount.

The common notion that a lender must sell a repossessed property for the same amount it cost to get possession and cannot make a profit (or loss) is false. If the foreclosing lender is the successful bidder at the auction, it will take possession of the property. Once it has taken possession of the property, all rules change. The lender now is the legal property owner; it can do anything it wants with the property: rent it, keep it, or sell it. If the lender decides to sell the property it can sell the property for any amount it so desires.

The Lender’s Responsibility

In order for the lender to resell the foreclosed property to someone else, the lender must first ensure that it has clear title or ownership of the property. Therefore the lender in an effort to recoup its losses will bid on the property at the time of auction. Once it claims possession of the property through the auction process, the lender will wipe out any junior liens and pay any outstanding property taxes to secure a clear title to the property. It is imperative for the lender to have a clean title to the property. If there are other liens on the property that have not been cleared the lender may run the risk of losing title to the foreclosed property.

Having cleared the property of any liens, back taxes and any other claims that may have previously existed.  The lender will generally add these expenses to the cost of the loan and try and offer the property based on this new asking price. This foreclosed property offered by the lender, now has a clear title and has been stripped of any junior liens and taxes that may have existed previously. This aspect is very important for the potential buyer of foreclosure properties. Many foreclosure properties, prior to making it to the auction have liens, which may need to be cleared first before clear title can pass to the new owner. Hence, a potential investor may incur expenses in order to ascertain the condition of the title prior to acquiring the property.

How Lenders Sell their REO’s

This practice varies from lender to lender. Some lenders are aggressive in marketing their REO properties while others are not as aggressive. Many lenders sell their properties directly. Aggressive lenders may advertise their foreclosure properties directly in the local newspapers, while others have to be probed to access this information (this, by the way is the rule and not the exception).

Lenders, who carry a large inventory of foreclosure properties, often have full time staff assigned to manage them. In addition to maintaining their internal staff, lenders may also use the expertise of professional brokers and agents. The lender establishes the selling (“playing”) rules and the broker deploys them based on guidelines set by the lender to market the properties.

The practice of establishing the market price also varies. Some lenders are very firm about the price at which they would like to sell the property, while others are not. However keep in mind, no policy is set in stone. And even though certain lenders may have such firm policies, but just like other things in this world: everything is negotiable.

Additionally if requested, brokers also assist lender in establishing market prices or recommend strategies to sell these properties. In doing so, brokers may have investors lined up on the sidelines just waiting for a good deal. But keep in mind, that this “sweet” relationship that the broker/investor enjoys is due to their ability to control the information.  With the power of the service provided by foreclosure4sale.com, this playing field is now more leveled for the serious investor.

 How to Find and Buy REOs

Fact: Thousands of REOs are sold every year by lenders.  Your goal is to sift through the information in order to find a property that best suits your investment objectives.

Buying REOs from banks, government and other agencies is fairly simple. The risk of acquiring the property through this method is minimal. Because lending institutions have secured the title at the time of foreclosure, you do not need to do further title research. Since the bank has a clear title to the property, with all liens eliminated. Your primary goal is to find a property that suits your investment criteria and approach the lending institution with your offer.

In order to accomplish this, you need a reliable data set, which is quick in finding properties that interest you. You want to spend the least amount of time finding the property and the most time negotiating your deal with the lender. At foreclosur4sale.com, we make every effort to keep this data current and up to date. There will be instances where the property you find on the website is already sold by the lender. Well, that is part of making money and doing business. It’s not easy: it will take a lot of due diligence and burning the st1:time Hour="0" Minute="0">midnight oil. But it will be worth it. And when you do, please call us and share your story with us, as we would love to hear about it.

When evaluating, consider the asking price, size, style etc. of the property against comparable properties in that area with equal or similar specification. This should give you some idea how much of a bargain is the property being offered. Your goal is to find a property that can be purchased at a discount to what the market offers.

When searching through the data for your property, be open to all possibilities. The “best” deal may not necessarily be the one that looks the prettiest. In fact, on the contrary it could very well be a run down house, begging for upgrades. The lender may be more flexible in getting rid of that property, rather than the one, which is the apple of everyone’s eyes.

The banks and the government at times, foreclose on properties that have been torn up and destroyed by the previous owner. If the repair cost to the lending institution is minimal, they will renovate the property themselves and try to get the most bang for their buck. But there are instances, where the lending institutions may decide to “let go” of a property without incurring further cost to upgrade it.

Secondly, just like in any business, creating relationships is very important; real estate investment is no different. When you speak to the bank representative work on building a relationship with them. Chances are you are not going to strike gold on the first shot. Most likely, you may have to consider many more properties before you are ready to make your move. A good relationship with the bank representative or the assigned agent will go a long way. When you subscribe to the service, we provide you with the name and phone number of the primary contact. Since these people are directly involved in this business there is a lot to be learnt from them. And as the saying goes “knowledge is power”.

Depending on your investment objective (i.e purchase as a primary residence or investment property), you can use the four primary considerations in negotiating an offer. The four considerations are:

·          Price of the property

·          Down Payment

·          Interest Rate

·          Closing Cost

As mentioned earlier, the lending institution wants to sell the property, and if you have a genuine interest in their property they will be willing to work with you.

At foreclosure4sale.com our primary objective is to bring both buyers and sellers together. Just like any other investments, foreclosure investment entails details and intricacies that an investor should be aware of. Due diligence, research, familiarity and an understanding of the scope of the investment obligation will always go a long way in your success in real estate investing.

We at foreclosure4sale.com wish you the very best in this rewarding endeavor.