If you are up late at night you have more than likely seen those commercials that let you know with their secrets you can make a fortune if you purchase real estate for banks and turn around and see the property. This sounds like a pretty easy way in which to make money, but the truth is that you may not know what you are getting into and may actually lose a bundle of money. If you really wish to buy REOâ€™s and make money then you should learn just how the entire process works before you jump in with both feet.
REOâ€™s are real estate properties that a bank or lending company owns due to the bank taking the home from the homeowner due to foreclosure. REOâ€™s are also homes that the bank owns instead of putting them up for action. When you see bank owned properties the main reason the bank keeps the property is that the balance of loan is equal or greater than the value of the home.
Once the property is put up for auction, you need to know that you will have to pay the balance left on the mortgage loan, along with other fees that the bank adds to the sale. Some of the fees that can be added to the purchase price include accrued interest, attorney fees, and other fees that occurred during the foreclosure process. The money you pay at the auction will be in cash! This is why most bank owned properties in up in the hand of real estate investors instead of a homebuyer with the desire to live in the home. The banks want the cash at the time of the auction, this means you will not have time to find financing and thus real estate investors are sure to grab it up at the auction due to having cash in hand.
Another big problem with purchasing bank owned property is that amount of time you have to do your homework and learn about the property. There could be liens on the property, and the remainder of the loan balance could be more than what the property is worth.
Now, if the home does not sell at auction, it will of course go back to the bank and become a REO or bank owned property. Once the bank has the property back after the auction, there are no liens on the property; however, the bank is not going to sell the home for less just to put money on the books. They will be more willing to take a loss but they are certainly not going to give it away.
Once the bank has the property, the individuals in the home will have to be evicted. Some lending companies may do repairs or sell the property â€œas isâ€. The bank will, however, take care of any IRS tax liens or Home Owner Association dues.
The main thing to remember when you are purchasing bank owned property is that many banks will list the property for an amount they know is way below market value just to get individuals bidding on the property. Once you are in a bidding war, you can almost forget buying. The main reason is that you find a property perfect for you family listed at $135,000, you have been searching and you know that that price is at least $50,000 below the rest of the homes in the area. The bank knows this as well, and has listed it as such to get interest in the property. Now, if you make an offer of $135,000 just like they were asking, you will receive notice that the owner is accepting bids until such and such date, and you will have to wait to see if you win the bid. The problem is real estate investors know the properties worth and will bid higher. It is best to stay out of these bidding wars, unless you are ready for the long haul and many disappointments.
The best way to really purchase bank owned property is through a real estate agents that understand the ins and outs of the process to guide you through everything. A good real estate agent will let you know if you have a chance of purchasing the property or not.