Buying a Foreclosure House

In adversity there is opportunity. As some borrowers find themselves overextended, hit by bad luck, or out of work, they are walking away from their homes and leaving their lender to deal with the property. A careful buyer can profit from these bank owned assets. Thanks to an abundance of these properties, and information sharing, these properties can be easy to find.

REO (Real Estate Owned) is the term used to describe a property that is owned by a lender. Typically, a homeowner in default loses his property in a foreclosure sale, where the lender (bank) will bid the amount of the loan at a public auction. The bank takes legal possession of the property, and prepares to sell it. In our area, there are REO houses in every price range and every condition- from “tear down” to brand new.

Before a foreclosure is placed on the market, several things will happen. In most cases, the lender will work with a Real Estate Broker that handles the REOs in a particular market. That Broker is contacted, and instructed to prepare the property for sale. The Broker’s preparation includes:

• Check for occupancy. It’s not unusual to find someone living in the foreclosed house. Though the bank has ownership, it may require an eviction to convince the occupant to move. Rental properties are subject to tenant rights, and the tenant may have a valid lease.
• Trashout and cleaning. The property will need to be cleared of personal property and trash.
• BPO- Broker Price Opinion. The listing agent and one or more other agents give an opinion of the market value of the property, including scenarios for improvement and varying market times.
• Utilities, lock changes, liens, title issues, neighborhood association dues, all have to be dealt with before the property is listed.

After this preparation is done, the property is listed for sale.

Most asked questions:

Q: If I make an offer on a property, how soon will I have an answer?

A: It depends. Some banks will respond the next business day, and there is little chance you’ll get a response on a weekend. Plan on at least 7 days before you’ll know if the offer is accepted.

Q: Can I get a better price on foreclosed property?

A: Maybe. If a property needs repairs, and is to be sold “as is”, a discounted price may take into account the unknown conditions and cost of repairs. Your agent should be able to provide you with comparable sales information. The lender has no interest in keeping the property, and the price should be reduced periodically until it is sold.

Q: How long does it take to close?

A: Bank owned properties are not much different when it comes to closing. Once the offer is accepted, expect about 6 weeks to close, if there is “clear title”.

Q: Can I have an inspection done?

A: Yes. A purchase agreement should include a contingency for satisfactory inspection.

Q: Is there a warranty?

A: Maybe. Some sellers provide a warranty, if you just ask for it. A homeowner’s warranty can be written into the purchase agreement.

Q: Are there special purchase agreements for foreclosure properties?

A: Sometimes. Ask your agent for a preview of the “standard counter offer”, or the lender’s version of the purchase offer before submitting your offer. If title insurance is provided by the seller, ask to preview this also. You will be required to provide loan prequalification or proof of funds before an offer may be accepted.

More questions? Call your agent, or call Lloyd Freyer at (402) 677-0017.