BANK OWNED HOMES PROCESS
United States
FORECLOSURE PROPERTY LIQUIDATION
What to Expect When Buying Foreclosed Homes
The Mysteries of buying REO Repo property explained
We are your source for Inside information about buying bank
owned homes:

Banks are forbidden from selling their homes on the market
themselves so, ultimately a broker will be involved. Want to go direct to
the source? An experienced REO agent  can provide all of the “inside
information” you will ever need.

There is no mystery to the REO market. There is no one with a secret
“in” or “system” that you need to buy. REO agent (Both listing and
sales) and developing a good relationship with them is your best way
to buying the best homes at the best price. They will be able to provide
access to REO properties as they come available and provide
advance notice of properties soon to be made available.



















What about Auctions?
The only “real” auction is the one that happens at the end of the
foreclosure process (Trustees Sale). The lender offers the property for
sale on the County Courthouse steps. You can find information about
upcoming trustee’s sales in the classified section of your local paper
or, from the County Courts. The information is free and there is no
reason to pay for this public information as many would lead you to
believe.

Buying on the Courthouse steps can be the riskiest way to purchase
property, and should never be attempted by a first-time buyer.
Inspections of the property are usually not an option; payment for the
property will usually have to be made in cash or, with a large deposit in
cash up front and the balance due within hours. Even after the sale,
you may end up owing any unpaid property taxes and liens against the
property.  The foreclosure auction also comes with the possibility that
the homeowner might redeem the home by coming up with the cash to
buy the house back within a specified period of time. The Internal
Revenue Service (IRS) also has the right to redeem the property within
120 days if back taxes are owed. A local real estate lawyer can fill you
in on the redemption laws in your state and advise you of further legal
issues if you are still interested in a true foreclosure auction.

Often, the price offered at the foreclosure auction will be higher than
the price it will be ultimately offered at on the open market (REO (Real
Estate Owned)). When buying as an REO through a real estate agent,
you will typically be provided free and clear title, title insurance and
also have the ability to have the property inspected and appraised.
You will also have the ability to finance the property and take
advantage of other incentives that may be offered by the lender-owner.


You have undoubtedly seen advertisements in the paper, the mail or
online that advertise properties being sold to the public at “auction”.
These are not true foreclosure auctions at all.  They  are nothing more
than advertising schemes designed to entice buyers into participating
in the “auction experience”. The more that attend these “auctions”, the
more excitement, the more excitement, the higher the bidding. Auctions
are great for the seller or to create huge profits for the auction
company yet, rarely prove advantageous for the average buyer. They
often entice buyers to attend by advertising unrealistically low prices
and then, only when you have registered, disclose that the price
advertised is simply a suggested starting bid. What they don’t reveal is
that the seller’s reserve price is substantially higher (The lowest price
they will sell for). Are these “auctions” complete scam? Some claim
them to be but, you would have to make that determination for
yourself. Other considerations would be that you may also be required
to make a non-refundable deposit immediately after bidding and pay
an additional “buyers premium” that could add 3-6% or more to your
purchase price. The fact is that you could buy a similar, and
sometimes the exact same property, without the hype, circus
atmosphere, and additional cost, directly from a real estate agent. No
buyers premiums, no additional fees to pay for the advertising and
circus tents and, you may get the bank to pay for your closing costs,
pay for repairs or other credits and provide for inspection periods
during which time, your initial deposit is fully refundable.


Writing your offer for a bank owned (REO) property:

Patience is the name of the game when entering the bank owned
property market. If you lack patience, REO homes are not for you.
Long wait times, little communication and competition for the best
homes is routine. Choosing the right agent to represent you will
alleviate some of the problems associated with the process. Even the
best, and most experienced, reo agents can not speed the process.

It is important to understand that, when offering on bank owned
homes, you are dealing not only with a listing and or selling agent, you
are dealing indirectly with an “asset manager” who may, or may not be,
affiliated with the financial institution, lender or investor who has
completed the foreclosure process.

When an offer is submitted, your information and offer terms -
conditions will be submitted to the “asset manager” via the listing agent.


What does this mean to your offer(s)?

If making offers on multiple homes (With the intention of maybe buying
only 1):
If you are making multiple offers, even through different agents, the
asset manager may likely be the same. Although you may think that
this is a great way to pick and choose after an acceptance, you may
be actually undermining your own efforts. Once agents and asset
managers see this happening, you will probably find it difficult, if not
impossible for any offer you make to be taken seriously. If you offer is
considered at all. Lenders have no interest in playing games. Their job
is to complete the sale, not process make believe offers from “gamers”.

Making offers at far less than listed price:

Lenders and their asset managers price their homes according to their
market indicators. By the time the property is listed for sale, most will
have obtained 3 BPOs (Broker Price Opinions) and 1 appraisal for a
licensed real estate appraiser. 2 BPO orders and 1 appraisal will be
completed in advance of the listing being placed with an agent and 1
by the listing agent before a price is ultimately determined. What does
this mean to you? When making an offer, the owner-lender has
already done their homework (Right or wrong). The price listed will
typically be less than the value determined by 4 separate individuals.
Could their price still be wrong? Certainly but, lenders seldom accept
or counter offers that are far less than the price they have already
determined to be less than fair market value especially in the first 30
days of listing. If you are making many offers and have yet to receive a
response from a lender or, one that you deem to be agreeable, you
may have already been banned. Banned? Yes, some asset managers
will notify their agents to no longer submit offer from certain individuals
unless they meet certain criteria.Again, asset managers are
overwhelmed with “investors” who have no real intention of completing
a sale.


Although lenders expect some negotiation, their pricing does not seem
to have any relationship with this expectation. Understand that the
“bank” has no emotional attachment to the property and are only
interested in disposing of the asset at the highest and best price with
the best terms….for them.  A “cry letter” included with your offer
explaining why you are making a “ridiculous” offer will not be seen by
anyone other than your agent. Asset Management systems are very
basic and the “lender” will not see your

written offer during the initial process. Offers are transmitted through
an online system that asks for offer price, concession costs (Closing
costs or other items requested by the buyer), the name of the buyer
and room for very brief comment, from the listing agent, about the offer.


How much should I offer?

This is a tough question to answer without knowledge of the property,
the price it is offered for, the bank involved and the region.

As a general rule of thumb, offers will be entertained somewhere
between 5-10% of the currently listed price. In the case of multiple
offers, bank owned homes can sell for well over their listed price.

Hiring an experienced, local REO agent will be able to guide you in the
right direction. Offering far less than the asking price will not typically
result in an acceptable counter or even a response. There are
situations that warrant a substantial difference between the listed price
and your offer. A good agent will guide you through the process and
provide the information you need before jeopardizing your future
efforts.  

Lenders and their asset managers price their homes according to their
market indicators. By the time the property is listed for sale, most will
have obtained 3 BPOs (Broker Price Opinions) and 1 appraisal for a
licensed real estate appraiser. 2 BPO orders and 1 appraisal will be
completed in advance of the listing being placed with an agent and 1
by the listing agent before a price is ultimately determined. When
listing a home for sale, the owner-lender has already done their
homework. You can agree with their homework and make an offer
close to their asking price ( +-5 to 10% ) or, move on to the next
property and save the frustration and potentially labeling yourself as a
“gamer”. Offering at far less than the current asking price, unless the
home has been on the market for many months and no activity, is
typically fruitless. Even then, 50% off list offers may do you more harm
than good.

It is not unusual to see price drops on homes that have been on the
market for some times to exceed $100,000.00. Good agents will watch
potential listings and have clients ready for a potential, and significant
price drop. When this happens, being the first to offer is your best bet
to securing the property. Don’t go in with the idea that, sine the price
has been reduced that they will now take even less. If you, and you
agent, see a good deal, it is time to act.


Only an experienced REO Realtor, familiar with the area and local real
estate market will be able to guide you in the right direction when
making an offer.


Finding the Right REO agent. Inspect what you expect!

The very best deals are long gone before most even know they are
available. The properties that remain are left for everyone else to sift
through. How do you get access to the best properties? Finding  an
experienced REO agent is your first step to your success.

Finding the right agent to represent you may be the most difficult part
of the process. Keeping a good agent is even harder. Good agents,
that ARE truly familiar with the REO market, will typically have a long
list of clients looking for a particular property  types. y. The very best
homes, at the very best prices go to, wouldn’t you guess, their very
best clients. It takes a huge investment of their time to scour through
all of the properties entering the market and these agents, and their
clients, will need to make immediate, educated decisions or…. you may
end up last in a long list of offers. The early bird gets the worm! If your
agent has called you about multiple properties and you have not
responded immediately or are indecisive, you may just end up on the
bottom of their list of clients to call.

An experienced REO agent WILL ask you more questions than you
ask them so, be prepared. Having a pre-approval through a direct
lender or, proof of available cash will be on the top of the list. Other
factors they will consider is whether the home will be your own
residence, a rental or even a “flip”.

If a potential buyer’s agent does not interview you before taking you on
as a client, you may want to stop and ask why.  Even if you are their
only client, they need to know what to be looking for. The time to ask
questions of your motivation and goals is not during the process. A
well qualified REO agent knows this.



Looking for rental property to add to your investment portfolio?

Sometimes, all it takes is some simple math to see if you have found a
great deal on a lender owned foreclosure. Your agent should have a
good understanding of the current rental market (Another reason that
a local agent is necessary to your success) and will be able to provide
information about current and projections of future market rents.
Knowing the direction future rents may take is an aspect often
overlooked by potential investors.

If you are able to acquire a property, after your initial investment
(Typically 20% for non-owner occupied investment property), and the
market rents for the area are enough to cover debt service ( Monthly
mortgage payment for a conventional, fixed rate, fully amortized loan
with principle and interest payments each month), property taxes
(Anywhere from 1.3% to over 2%) and insurance and, you still retain
monthly positive cash flow to cover a pre-determined  vacancy factor  
and deferred maintenance, you know that you are on the right track.

If you had a mortgage payment of $1300.00 including PITI and market
rents were at $1500.00 it would leave $2400.00 per year applied to
vacancy and repairs. Hard to do? Not right now but, competition for
these properties is becoming greater every day.

The ideal situation for an investor is to have someone else make their
monthly mortgage payment and pay for all repairs over the life of the
mortgage. The idea is that in 20-30 years, you will have a substantial
estate to draw upon for needed income or, live from the income
realized from the paid for property and leave the asset to your heirs.

If all you purchased were 10 properties and market rents did not
increase over the next 20 years, you would have over $13,000.00 per
month in income. Of course, you would have to pay taxes on this
income and $13,000.00 will not mean as much 20 years from now as

it does today but, rents do increase over time. $13,000.00 per month
is still quite a bit of income coming in from something that someone
else paid for!

You should consult with your Realtor and accountant or tax attorney to
establish a plan that meets with your investment goal.

Are you a Flipper?

This is one of the most volatile areas of the market and there are many
different opinions on the viability of flipping. Flipping is not for the faint
of heart, financially unstable or uneducated investor. You must have
knowledge of the market, rehab costs and processes, a well developed
plan, budgeting skills and the financial ability to complete the process.
Even the most experienced “flippers” run into unforeseen obstacles
that can add thousands to your bottom line. Going over budget and
estimated time frames is common and must be avoided through
thorough cost, budget and time estimating. If you are weak in any of
these areas or lack general knowledge of construction methods, you
need to bring someone on board to assist you before even
considering flipping a home.

Casey Serin, one of this countries most notorious flipping flops, has
become the poster child for the wrong way to flip. A quick Google of his
name will provide a wealth of information and a long list of what  to
avoid. Why reinvent the wheel when you can learn from the king of the
flip flop?

This market could still bring a good return on your investment (Think
10% as a potential profit goal). Looking to the rental market, as a
contingency plan in case you are unable to sell within 90 days or so,
should be part of a well developed strategy. If, after all of your initial
costs and re-hab work, you are still able to rent and cover all of your
expenses, you may be able to avoid a potential disaster while still
building future wealth. Barring a rental contingency plan, you will have
to have enough capital to cover holding costs for as long as it takes to
sell (Think potential Loss). If you do not have the ability to do either
and must rely on selling within a short time frame to avoid financial
disaster, there are other, less risky, investment strategies to consider.

If you are still ready, able and willing to flip, a Realtor who is
experienced in the REO market is an absolute must and, will help
establish a plan that meets your goals. They will also have the
experience necessary to advise you on the right direction to proceed.
Keep in mind that no one can predict the future. Your Realtor is only
able to be your guide though the process yet, ultimately all of the
potential risks are yours, and yours alone. Fail to plan and….plan to
fail.

The Offering Process:

Asset managers have their own process that must be followed in order
to make a successful offer. Listing agents are given instructions that
are conveyed directly to brokers. These instructions are displayed in
the MLS system along with required addendums where required. This
information is only visible to participating Realtors or their brokers and
not displayed on the public MLS system.

Your offer will need to be submitted on the proper forms along with a
copy of your deposit check (Typically 1% of the purchase price), a pre
approval letter from a direct lender (Not your everyday loan broker) or
proof of funds when paying cash. Your Realtor will also attach any
required addendums with your offer. All forms will usually be sent via e-
mail and fax to speed the process.

After your offer is transmitted and received by the listing broker, your
offer will be entered into an asset management system online or, in
some rare instances where the asset manager (The banks
representative) does not utilize management systems; your offer is
forwarded on directly to the asset manager. In most cases, they will not
see your actual offer. What is transmitted to them is only your name,
the purchase price offered and the general terms of your offer
(Whether there is financing involved, the amount of your deposit,  the
amount of your down payment and any other contractual provisions ).
There is no need to explain your offer or provide additional details,
they will not see it. The simpler your offer is, the better.  

Once transmitted, received and entered or forwarded to the bank, all
you can do is wait. It is typical to hear nothing at all for a few days or,
up to a week or more. Sometimes a response will be received in a
matter of hours. Patience is a virtue. Hounding your Realtor will not
speed the process. Nothing will speed the process at this point other
than a clean and easy to accept offer. Even then, there is no
guarantee your offer will receive a quick response.

When responding to your offer, the banks asset manager will do so
using a counter offer. Even if they agree on all of the terms as
submitted, they will provide a counter offer that must be retuned to
them within a specified period of time (Usually 1-3 days) after which
their offer will be null and void. Time is of the essence so, be prepared
to respond. If  they are not in agreement, the counter offer will contain
the terms that they are willing to accept unless another, more desirable
offer, is received before your acceptance. You can either accept their
terms or,  have your Realtor complete a counter offer in return. Rarely
will an  asset manager complete more than 2-3 counter offers. If you
can not reach an agreement after 2-3 counter offers, it is usually time
to move on.


After the offer is accepted:

Once the terms are agreed upon and the counter offers and
addendums are returned, your original offer and counter offer(s) will
then be returned to the bank for signatures. It may take an additional
week or more for them to be returned and escrow opened. It is
imperative that all the terms and conditions contained within their final
counter offer are followed regardless of being returned and escrow
being opened.  Some counter offers will state that your contingency
time frames start from your signature and others will state that these
periods start only after escrow receives the signed documents from the
owner-bank. Although rare, it is possible for the lender to accept
another, more desirable offer, before your contact is signed. If this
does happen, there is nothing you can do other than leave your offer
as a back up or, move on. Contracts are not fully ratified until signed
by the banks representatives.

Once escrow is opened, the escrow officer will forward initial
documents for your review and completion. These documents need to
be completed and returned as soon as possible and within the time
frames allowed by the bank. When obtaining a loan, you will also need
to complete all of the required paperwork that they require as soon as
possible. The closing dates set by the bank are firm and their contract
will usually contain a per diem charge for each day beyond the closing
date specified ($100.00 per day or more). During this time you will also
need to complete your home inspection, termite inspection or other
agreed upon inspections contained in the contract. Failure to complete
your inspections or other required conditions within the specified time
frames could put your deposit at risk. Time is of the essence. Your
Realtor will help you through the process but, ultimately, it is your
responsibility to follow the contract.
When you have completed your inspections, your loan has been fully
approved, an appraisal has been completed and all other conditions
have been complete and accepted, your lender will order loan
documents or, when paying cash, escrow will provide a closing
estimate which will include the total amount that will need to be
deposited by wire or certified funds to escrow and will then, after
receipt of funds,  record and close within 24-48 hours.  Once loan
documents are  received back to your lender or to escrow, you will
need to sign the loan documents before a Notary Public. This happens
either at the escrow office chosen by the bank, at the lenders office or,
on occasion, at your home or office. When returned to escrow, your
lender will review the documents, complete final verifications and then
prepare for funding of the loan.

Loans will typically fund, if no issues exist, within 24-48 hours after
received and approved. Any conditions of funding must be completed
prior to actual funding. Once funded, escrow will record and close
within 24-48 hours.

Before close of escrow, no work should ever commence on the
property. Attempting to start repairs or, moving into the property prior
to confirm closing could void the contract.

After you receive notification of closing, the property is yours.
Congratulations!

For information about foreclosures and bank owned homes in
your specific state, simply click on your state to locate a bank
owned property professional licensed in your state of interest.
REOTRANS, USRESNET or other reo - asset management systems are used when making offers,  when listing reo properties or providing
a service in conjunction with the offering of an reo property. Properties listed as bank owned may be owned by by: Wells Fargo Bank REO,
Bank of America REO, Countrywide REO, Wachovia Bank REO, Chase Bank REO or through and asset management company.  
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