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Why should you Negotiate with a Bank and Purchase REO

Posted by Jeff Hardy in Foreclosures                          Words in this Post: 433

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After a property has gone into a mortgage default, it goes through a Foreclosure Auction and if the lending institution does not find a buyer at a foreclosure auction, this property slips into the misty recesses of the lending institution. It is filed behind a door with the initials REO, or "real estate owned." This department of the bank or lending institution usually has its own managers and staff. They are able to do almost anything they deem advisable in order to dispose of this foreclosed property and the rest of their REO properties. They are motivated, but not always for obvious reasons. Their motivations often get mixed up, lost somewhere between "clearing the decks" and "holding the bottom line" for their department.

It is important to understand that banks shy away from property ownership, or REOs. Federal banking regulations restrict how much real estate the bank can own. This fact alone provides motivation for them to divest themselves of these properties.

Common sense would dictate that an REO property be discounted or repaired or handled in a way that might enhance its chance of selling. After all, at this point in the process, the bank has likely had the property in their liability inventory for at least a year. instead, many banks allow their REOs to sit and deteriorate because lenders often want their money without doing any more work. They figure their work — their investment — was providing the loan in the first place, then going through the hassle and additional expense of foreclosing. An acquaintance of mine had his home foreclosed and the bank did not even winterize the home to protect it during the winter where temperatures often drop below zero.
Banks and lenders are in the money business, not the real estate management or investing business.

One obvious advantage of buying an REO property directly from a lender is that they alone have the ability to alter the "rules" of finance. For example, they may be willing to finance your purchase with little or no down payment, while including enough cash at closing for you to do the repairs necessary on the property. They can give you a moratorium on payments for a set number of months and thereby give you the chance to sell or rent the property. They often offer a deeply discounted price.

The savvy investor will contact the lender after the trustee sale and make an offer to purchase. This begins the negotiation process. REO departments compile lists of their REO real estate and will often make it available to a potential buyer with a simple phone call.

Author: Jeff Hardy

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Tags: Find Foreclosed Properties, Foreclosed Properties, REO