One way you may be able to get a good deal on a new home or an investment property is to buy foreclosed homes from a bank.
Buying a real-estate-owned home is often less risky than buying at auction. One way you may be able to get good deals on a new home or investment properties is to buy foreclosed homes from a bank. While foreclosed homes may have issues, buying them from a bank is less risky than buying them in a foreclosure auction.
The foreclosure process
It may help you to understand the foreclosure process before you look at these home listings. When a homeowner gets behind on his or her mortgage, the bank sends a Notice of Default (NOD) which outlines the time in which mortgage payments must be made to avoid foreclosure and then a Notice of Sale (NOS), which states when the home will be foreclosed and auctioned.
If the homeowner doesn't bring the loan current, the home is auctioned. Typically, the bank sets a reserve price on the home. If the home doesn't get bids that meet the reserve price, then the home remains in the possession of the bank. These homes are called real-estate-owned (REO) properties. An REO property may also be owned by a government agency. This guide explains the process of buying government-owned homes, such as U.S. Department of Housing and Development (HUD).
Reasons to buy REO property
It is better to buy an REO property rather than buy a foreclosed home from the bank at auction for a couple of reasons.
- The bank usually clears the property titles of REO homes before selling them. A foreclosed home may have liens from equity loans, second mortgages, back taxes, contractor's fees or other debts against the previous homeowner. These liens are not always cleared when the home is auctioned but should be cleared before the home is listed for sale by the bank.
Read more about buying real estate owned property from a bank in this article.
- The bank often makes repairs to the home before placing it on the real estate market. A foreclosed home may need maintenance or in a worst-case scenario, be stripped of fixtures, appliances and even the wiring in the walls. Because the bank wants to recoup as much of the original mortgage as possible, it will clean up the property, do basic maintenance and even make some major repairs. This is not true in all cases. REO properties are sold in as-is condition regardless of how much work a bank does before listing them. Which is why the third reason it is better to buy foreclosed homes from the bank after auction is so important.
- You can have the home inspected before making an offer. When you buy foreclosed homes from a bank, you should always have the home professionally inspected before you make an offer. An inspection report tells you the true condition of a home, any major problems with the property and the home's market value in its current condition. The inspection report helps you rule out homes that require extensive repairs or negotiate a lower price based on the cost of those repairs.
Help from a real estate agent
Negotiating a lower price on a bank-owned home can be tricky. It helps to work with a real estate agent who specializes in REO homes and foreclosed homes. These agents help you find REO properties, negotiate the lowest price and write an offer that gets accepted. If you need help finding a real estate agent near you, or you want to get local foreclosure listings, go to RealtyNow today.