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Another good way to purchase foreclosures is after an auction, when
the lender itself is the successful bidder or there are no bids at all.
Either way, the lender becomes the legal owner and the property is
considered one of its non-performing assets. These Bank Foreclosures
are often referred to as either REO Real Estate Owned. The key thing
to remember is that banks typically are not in the business of managing
real estate, nor do they want to be. This can create an opportunity
to buy at a great price.
Where is the Opportunity?
There are several reasons why banks want to quickly sell their REO
bank foreclosures. Here are the top three:
1. Non-Performing Assets
Banks generally little interest in managing and disposing of real property.
So they want to rid themselves of REO bank foreclosures. But this
does not mean they want to lose money in the process. Their goal is to
quickly recoup the capital they tied up in these loans and reuse the
funds profitably.
2. Carrying Costs
Once ownership of the property reverts to the bank, the expenses of
holding the foreclosed property quickly begin accruing. These include
property taxes, maintenance expenses and insurance premiums. They
continue to mount until the property is sold, putting pressure on the
bank to quickly dispose of the property. In most cases, the longer a
bank holds a property the more unprofitable it becomes.
3. Property Damage
Since most REO bank foreclosures are vacant, there is increased risk
of property damage from vandals and/or bad weather. Again, this
creates additional incentive for a bank to quickly move this foreclosed
property out of its possession.
Pros and Cons of Buying Bank Owned Property
Let's start with the benefits of buying directly from the lender. First,
most REO bank foreclosures are sold with a clean title, meaning that
all junior liens are resolved. You can buy the property without worrying
about a redemption period or any unexpected judgments.
The second benefit: There usually is an abundance of bank foreclosures
nationwide, which creates significant opportunity for good deals.
While this doesn’t mean that it’s easy to find below-market REO bank
foreclosures, it does mean that if you persist you will be able to find
properties that meet your criteria.
The last key benefit: Banks may be flexible with terms and conditions
when selling foreclosed property. While banks will always attempt to
get the best deal possible, the fact that they are a lending institution
gives them the flexibility to be creative and negotiate the terms and
conditions of the loan.
The key disadvantage: The purchase process is quite simple with most
bank foreclosures having clear title. This sounds like a benefit, but
ultimately its effect is to attract more buyers. This creates more competition.
Closing the Deal
Inevitably you’ll encounter competitors as you look for a great deal on
a bank foreclosure. Here are tips to give you an edge:
First, we recommend establishing personal relationships with the
lenders in your area. This can provide just the advantage you need
against another qualified buyer. Second, if you have an excellent credit
rating, make sure the banking contacts know about it. Bankers want to
ensure that a foreclosure property doesn't return to their inventory.
Your strong credit history can cause them to gravitate toward your |
