Buying 'REO' Foreclosure Properties

It can be very profitable purchasing bank owned properties in the current real estate market. This endeavor comes with various frustrations that vary from lender to lender.

The optimum situation is where the lender/seller* responds quickly to offers, is knowledgeable and the transaction goes smoothly.

I have sold REO properties in the current market as well as in the last real estate downturn in the mid 90’s when we had the RTC/Savings and Loan debacle.

Here’s a few things to be prepared for.

1) Lack of logic. We know what the most economical/practical thing for a lender to do, but sometimes they don’t. Decisions are being made on behalf of the lender by an individual where “it’s not their money”. Resign yourself to being surprised.

2) Hurry up and Wait. It may take days to get an initial response to your offer. It may also take many days to get the signed sellers acceptance of your offer as well. Then once the lender has finally signed the acceptance, they may come back with additional requirements.

They will expect these “additional requirements” be met by you almost immediately or they will cancel your transaction and accept another offer.

3) Lender Addendums All banks have their own addendums that I am sure their attorneys spent many hours drafting and contemplating every remote possibility of liability they could think of.

These addendums put all liability on the buyer and have so many disclaimers on behalf of the lender you have no recourse if there is something wrong with the property.

4) State Mandated Disclosure Forms Check with your own state, but in California lenders are exempt from the required state disclosure forms if the property is an REO.

5) Property is sold “as is” Don’t even think about trying to negotiate any repairs or fix up. Most likely it will never happen. The best you can hope for is a repair credit.

6) Escrow with an REO Property So you have survived all the above. Now you are in escrow. The lender always selects the escrow company. Many times it will be in another city 100 miles away.

Keep copies of all your documentation. Items get lost quite frequently and you may be required to resubmit various documents. Remember, if you don’t, the lender will cancel the transaction and accept someone elses offer

Often the lender waits to return the grant deed which holds up your closing. I have never figured out why this occurs but it does quite often.

7) Your Real Estate Broker The broker that wrote your offer will be working on your behalf to handle all the previously mentioned issues and iron out the issues as they arise. Many times you may be frustrated and what your broker is telling you isn’t logical. Re-read item # 1.

Again, purchasing REO’s can be very profitable, but it is frustrating and time consuming. That’s why you are getting a great buy!

• The term lender in this article refers to the bank/seller of the property that you are purchasing.