Buying Bank Owned Real Estate

Secrets to Buying a Bank Foreclosure

Buying bank owned real estate is a great opportunity. Banks are like normal sellers in many respects. When demand for housing is high and supply is low, banks are very inflexible on price. But when supply of foreclosed homes is high and demand is low you can purchase some houses at fire sale prices.

Bank owned real estate is sometimes known as REO property - real estate owned. It is acquired when a homeowner defaults on their mortgage and since banks are not in the property management business, it is the responsibility of their loss mitigation department to minimize any losses involved with the department (or, if times are good, maximize profits).

The property becomes owned by the bank only after it has gone through the foreclosure process and no one has bid on it at the foreclosure auction. Usually, an agent for the bank will be there to bid at the foreclosure auction, unless the bank has decided to walk away from the property.

Banks generally do a poor job of managing their REO property and generally you can find many bank owned properties just by driving around and looking for properties that appear to be abandoned. I think that this is the best way to find foreclosure properties. Unkempt lawns and old phone books sitting by the mailbox are two clues to look for. Sometimes, you'll find boarded up windows and doors or notices on the door. I like to bike and often will find two or three potential foreclosures while getting some exercise. If you see a notice on the door or window it is often a sign that the house is a government owned foreclosure.

Once you find a potential foreclosure property, note the address and go to your local Courthouse where records are kept. You can find who owns the property. From there it is a matter of getting a phone number for the loss mitigation department.

There are a number of other ways to find housing foreclosures. Probably the easiest is to contact a local real estate office and find a real estate agent that specializes in REO property. Not every agent does this type of work because it requires specialized knowledge, especially if a short sale is involved. It is also time consuming compared to normal real estate sales.

Lots of people like to use foreclosure websites. There are a number of foreclosure websites. Most charge you a fee or give a free 7 day trial. Or you can get free government foreclosure listings.

One other way to find bank owned real estate is to contact banks directly. Again, try to contact the loss mitigation department. The difficulty with this is the reason banks created a large part of the housing crisis. Banks that wrote mortgages often sold these mortgages to secondary markets. So small local banks might not have many REO property available.

Once you find a bank owned home, be prepared to wait a long time to find if your offer is accepted. Dealing with a bank takes much more time than dealing with a homeowner. If your offer is less than what is owed on the property, the offer goes through the short sales process. Even if your purchase offer is for more than the underlying lien on the property, it could take months to pass through the layers of management at the bank to approve the offer. The more cash you have the faster the approval process. Some banks will be willing to finance the property for you if you have lots of cash and a good credit history.

Like any other aspect of investing in rental property, don't get discouraged if your offer is rejected. Just like with a property owner, you can haggle with banks. If the loss mitigation officer seems inflexible, move on to the next foreclosed home.

Buying bank owned real estate is a great way to build your rental property portfolio. It does take more time than some other methods but the rewards can be greater.

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