a Bank Owned Home
Develop a system to keep track of properties that interest you.
A good tracking system is important as most foreclosure buyers pursue
many properties, sometimes over a period of several months.
After you find
a property online, it's a good idea to drive by the property to
get a better idea of the property's condition and the type of neighborhood.
Some buyers and investors who have driven by the property have found
notices posted there that provide more information about the bank
who now owns the property. You'll also see if the property is listed
with a real estate agent.
the potential bargain
When you find a property that interests you, perform some preliminary
research to make sure the property represents a good bargain opportunity.
Your research should not take more than one or two days because
you do not want to delay too long before contacting the foreclosing
bank. The key pieces of information you need to gather are the estimated
market value of the property and the bank's break-even amount.
The bank's break-even
amount includes the unpaid balance of the loan, any fees and costs
incurred during the foreclosure process and any other liens the
bank had to pay off to take ownership of the property. The unpaid
loan balance plus any foreclosure fees and costs are included in
the opening bid.
You or your real estate agent should initiate contact with the bank
to express your interest in the property. Before you expend the
time and effort to contact the bank, make sure you're fully prepared
At this stage
of foreclosure it's more likely the property will be listed for
sale on the Multiple Listing Service (MLS), so make sure you or
your agent checks the MLS. If the property is listed for sale, you
can contact the listing agent directly. Keep in mind that the potential
bargain often diminishes if a listing agent is involved.
If the property
is not listed with a real estate agent, you'll need to take some
pro-active steps to contact the foreclosing bank directly. The bank's
main focus is not selling property, which means you may need to
do some digging to find the department or person at the bank who
manages repossessed property.
When you call
the foreclosing bank, you should ask for the REO (Real Estate Owned)
department, bank-owned homes department or asset management department.
Be patient and persistent at this point because it may take some
time to get through to this department.
If you have
trouble contacting the bank by phone, another option is to overnight
or fax a letter to the bank stating your interest in the property.
Some buyers and investors include a check made out to a local escrow
company to get the bank's attention. This check is usually a small
percentage of the total purchase price and should be refunded if
no transaction takes place, but it shows you're a serious buyer.
a purchase agreement
Once you make contact with the bank's asset manager or REO officer,
you should arrange to walk through the property (with your agent
if applicable) to make sure it fits your criteria as a buyer. If
both you and the bank agree to proceed, you should start negotiating
the terms of the purchase agreement. A real estate agent can be
a valuable resource during the negotiating process.
If state law
allows a redemption period for the owner after the bank takes ownership
of the property, you may have to wait until the end of the redemption
period - several weeks or several months, depending on the state.
During the redemption period the owner can regain ownership of the
property by paying the total amount owed to the bank plus any applicable
The bank's primary
goal is to at least break even on all the costs that it has sunk
into the property. That includes the unpaid balance of the loan,
the expenses associated with the foreclosure proceedings, other
liens and repairs to the property. Your goal as a buyer is to purchase
the property below market value, minus any estimated repair costs.
This is often possible if you contact the bank quickly and are a
prepared buyer ready to make a purchase.
In the recent
real estate market, buying directly from the bank has not been as
profitable as buying during pre-foreclosure or at the public auction.
That's not to say there aren't good deals available. And many buyers
and investors prefer to buy directly from the bank because it's
typically a more predictable process than buying during pre-foreclosure
or at a public auction.
get a better bargain if you're willing to buy the property "as
is," meaning you're willing to buy the property in need of
repairs disclosed by the seller. Of course you'll still want to
figure estimated repair costs into your final purchase offer.
Banks may be
more willing to sell at a below-market price if they have a glut
of foreclosures, which are non-performing assets from their perspective.
If you're an investor or buyer looking for more properties to purchase,
you should let the asset manager or REO officer know to contact
you in the future if the bank needs to quickly unload foreclosure
Once you've arrived at an agreement with the foreclosing bank, you
can put the agreement in writing. You should have a local real
estate agent or real estate attorney help if you're not familiar
with how to draw up a purchase agreement.
agreement should make closing of the deal contingent on a full title
search conducted by a title company or attorney. The purchase agreement
should also allow for a professional inspection of the property
before closing the deal.
An escrow company,
who acts as a third party, can manage the transfer of money and
property ownership. Assuming that you have your financing secured,
this should be a fairly smooth process.