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BANK FORECLOSURES
REO
vs. Foreclosure Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property (did the courses tell you about that one!). There may also be other liens against the property. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property. In Michigan, the banks get them back after the 6 month redemption period expires (6 months to the day after the sheriff’s sale.)
Now
it’s a Bank-Owned Property A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain. REMEMBER: the bank is now the owner of the property and will want to get the most they can for it. The big difference is they don’t want it for long and they have the financial resources to take a hit if it sells low, unlike most homeowners.
How
Banks Sell REO's Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer. Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
You’re Buying As-Is Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct. Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted. Banks do not want to see a lot of proprietary disclosures. If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements. Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it "as is." In Michigan, the Winter can beat up homes pretty bad so try to understand what you’re getting into.
Making the Offer
Offers are usually FAXED to the bank though today there is an early transition to online offer submission from the listing Realtor to the bank. The listing agent needs your originals. There is no formal presentation. If you make an offer on Friday, don’t expect an answer until at least Monday. Nothing happens evenings and weekends (banks are closed). Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-approval letter and/or a source of funds if it is a cash offer. A buyer biography can be helpful, too. Make your offer easy to accept. Hopefully these tips will manage your expectations. Remember that sometimes there are deals and sometimes you’ll be paying pretty close to full price -- so buying bank homes is not a guarantee of instant equity!
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