The US has seen an astonishing number of foreclosures during this past year, totalling an incredible 159,925 (foreclosures) as of December 2010 in the US alone. Those looking to purchase a new home at a good price couldn’t pick a better time to begin their search; however, they should be aware of what a Bank Owned Home is, how it works, and how to participate effectively in its purchase.
When a home owner defaults on the payments of their mortgage the property becomes foreclosed and becomes property of the bank. It is this process of foreclosure that creates a Bank Owned Home, also known as a Real Estate Owned (REO) home. The bank in question legally possesses the right to put the home up for sale or to auction in order to retain the money lost on the defaulted mortgage.
As banks are not able to directly sell the home, they work in partnership with a REO agent who is able to then work directly with interested buyers. In order to create awareness of the foreclosed properties, the REO agents and banks post for-sale ads online allowing for a wide audience of potential buyers.
There are three distinct ways for a potential buyer to make a bid on a Bank Owned Home. They are:
- Place a bid online
- Contact the REO agent directly
- Contact the original home owners before the home becomes a foreclosed property
In addition to the use of online methods, banks also put homes up for auction. This process has its own set of rules and procedures. It is important for a buyer interested in purchasing a home this way to be aware of the required steps in order to create a smooth and easy transition.
- Make sure to register with the trust of the company
- Be aware of all the details regarding who is hosting the auction
- Payment can be done two ways: cash and cashier check
Few sellers will ask for a full payment on the same day of the auction while others may wish for a certain percentage on the same day as the auction – be prepared for this. This said it is usual for the buyer to have a 30 period in order to pay the full amount owing.
Whether purchasing through online methods, through a REO agent, or through an auction it is vitally important to have a lawyer ready and available to handle all legal aspects when signing the agreement. In addition, all potential buyers should make sure to have the home inspected by a professional and reputable home inspector in order to make sure that the home is safe, there are no unexpected and costly problems, and that they are buying the home of their dreams.
In order to make the process as smooth and easy as possible, a buyer should follow the listed steps below:
- Take a close look at the home and neighbourhood of each listing. Visit the area, talk to people, and make calls; know as much as possible.
- Check the cost price as placed by other individuals interested in the same property as you.
- Make sure there are no pending fees or liens by previous owners; this will allow you to contact the previous owners directly.
- Pay in cash as this will show that you are financially fit. If able, have a pre-approved letter from your lender, this will go a long way to showing that you are a sound buyer.
- Make sure to plan ahead by having a as-is offer or a counter offer ready.
- Keep your attorney ready.
- Check the condition of the home with a professional and reputable home inspector.
- Be aware of all previous payment and fees and have your cash ready; this will make the process simple and obstacle free.