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How To Buy Bank Owned (REO) Homes

Jul 23, 2013 - 2 Min read
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Real Estate Expert

Essentially, there are three different stages at which you can buy a foreclosure property. Investors and homebuyers can purchase a foreclosure property in the first phase of default — before a foreclosure auction takes place. Secondly, investors can purchase a property in at the public foreclosure auction. And finally, a foreclosure property can be purchased from the bank or lending institution if no one bids at the public sale and the bank repossesses the property.

Once a foreclosed property is purchased by the bank at the public foreclosure auction sale, it reverts back to the bank and becomes a bank-owned REO property. Anyone can buy a bank-owned REO. The challenge for real estate investors is to reach the person who can make the decision to sell the bank-owned property. Each lending institution has different rules and requirements on how they sell bank-owned real estate. Contact the lender and find out what they require to purchase an REO property.

Most banks are eager to negotiate. After all, the lender has the biggest financial stake in a foreclosed property. The lender made an 80 percent, 90 percent, or even a 100 percent loan to the borrower to purchase the property. Therefore, the lender who may have a growing inventory of bank-owned properties is a motivated seller. Lenders want to remove the properties from their inventories. Bank officers in the loss mitigation department will want to work with investors and home buyers because they want to minimize the bank’s loss. Some investors call bank-owned properties repos, which is short for repossessions.

Frequently, lending institutions hire real estate brokers to market and sell their REO inventories. Smaller local banks may use one real estate broker to handle their REO properties. Larger regional and national banks employ hundreds of brokers to handle their inventory of thousands of foreclosed bank-owned REOs.

Buying a lender’s real estate owned property is a lot less complicated, involves less competition and usually doesn’t expose investors to as much risk as buying in other phases of the foreclosure process. Investors should consider working with several lenders.

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