Bank Foreclosures

Bank Repossessions and REO (Real Estate Owned) Properties

Another great opportunity to purchase foreclosures is after the auction, when the lender is either the successful bidder or there are no bids at all. In either case, the bank becomes the legal property owner and the property is considered a non-performing asset of the bank. When ownership is transferred to the bank as a result of foreclosure, these Bank Foreclosures are often referred to as either REO Real Estate Owned. Property that is in the possession of a lender as a result of foreclosure or forfeiture. or Bank Owned properties. At this stage, the key point to remember is that banks typically are not in the business of managing real estate, nor do they want to be. This can create a solid opportunity to buy property at a great price. This section will provide an overview on the REO process and why banks are so eager to sell their bank foreclosure inventory.

Where is the Opportunity?
There are several reasons why banks want to quickly sell their REO bank foreclosures. The top three reasons are discussed below:

(1) Non-Performing Assets A loan or lease that is not meeting its stated principal and interest payments.: Banks are primarily in the business of lending money and have little interest in diverting their resources toward managing the disposition of real property. Consequently, banks are anxious to dispose of their REO bank foreclosures. However, this does not mean that banks want to lose money in the sale process. The banks' goal is to quickly recoup the capital tied up in these non-performing loans and re-deploy it in the form of a new profitable loan.

(2) Carrying Costs: As soon as ownership of the property reverts back to the bank, the expenses of holding the foreclosed property quickly begin to accrue. These costs include property taxes, maintenance expenses and insurance premiums. These costs continue to mount until the property is sold which puts added pressure on the bank to quickly dispose of the asset. 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 always risk of property damage from vandals and/or bad weather. The problem grows with every additional REO bank foreclosure added to banks non-performing asset portfolio. Again, this creates additional incentive for a bank to quickly move this foreclosed property out of its possession.

While banks are clearly motivated to sell their REO bank foreclosures quickly, there are both pros and cons to buying bank foreclosures.

Pros and Cons of Buying Bank Owned Property?
Buying bank foreclosures directly from the lender has both advantages and disadvantages. Let's start with the key benefits of buying directly from the lender. First of all, most REO bank foreclosures are sold with a clean title, meaning that all junior liens A lien that is lower in priority relative to other liens. or encumbrances A charge, claim, or lien against a property or personal right or interest in a property that affects or limits the title but does not prevent transfer on the property are resolved. The means you can buy the property without worrying about the redemption period or any unexpected judgments against the property which can significantly impact the value of your investment.

The second benefit is that there is typically an abundance of bank foreclosures nationwide, creating significant opportunity to identify good deals. However, this does not mean it is easy to find below market REO bank foreclosures, but it does mean that with hard work and persistence you will be able to identify properties that meet your investment criteria.

The last key benefit to bank foreclosures is that banks may be flexible with the terms and conditions when selling foreclosed property from their non-performing asset pool. 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.

Now let's take a look at the key disadvantage of buying REO bank foreclosures. The key disadvantage is that the purchase process is quite simple with most bank foreclosures having clear title. While this sounds like a benefit, it ultimately has the effect of attracting more buyers creating added competition for a given property. As the competition increases, the selling price is driven up resulting in lower profitability in the deal.

Closing the Deal
Inevitably you will encounter some competition in your quest to find a great deal on a bank foreclosure. As such, we have provided some useful tips to give you an edge on the competition. First of all, we recommend establishing personal relationships with the lenders in your area. A strong personal relationship with the lender can provide just the edge you need against another qualified buyer. For your convenience, we have assembled a nationwide database of REO lenders with the appropriate contact information. Second, if you have established an outstanding credit rating, make sure the banks know about it. While lenders are eager to sell their REO bank foreclosures, they also want to ensure that the property does not return to their inventory any time soon. By highlighting your strong credit history, the banks will naturally gravitate toward your offer.