The Process of Buying Foreclosure Properties
Listing your home can be overwhelming, so we created a list of our top tips in order to prepare your home to sell.
Consider watching this video
by Lisa Moore and Chip Jones on how you can purchase a foreclosure property! What is the process of buying foreclosure properties? Here's are some of the details we will go over:
- What are REOs?
- How to purchase foreclosures
- How to find foreclosures
- Home inspections on foreclosures
- Types of REOs
- Putting an offer on a foreclosure home
- Closing on a foreclosure property
- Title work and liens on a foreclosed home
What are REOs?
REO means Real Estate Owned, which is a bank-owned property. These properties have been turned back over to the banks because the people who lived at the property were unable to pay their mortgages for one reason or another. A bank or lender takes ownership of the foreclosure after an unsuccessful sale at a foreclosure auction. It may have been unsuccessful because of the lack of bids. After the fail of sale at the auction, it is considered an REO property. Any type of property can become lender-owned from detached houses and ranches to land and condominiums.
How to Find Foreclosures
First, call an MTM agent to help you look on the MLS (Multiple Listing Services). Typically, a real estate agent and the lender have done a market analysis and have come up with a fair price. You shouldn't expect the home to be undervalued, but you can expect the home's value to be reasonable.
Your agent has local connections, so your MTM agent can most likely help you find properties faster than you could find yourself. Our agents have direct connections to the lenders in the area, and can find several REO properties near you!
Sheriff Sale Lists and Tax Sale Lists are also some options to look into when trying to find an REO home listing. These are available at the courthouse. You may also want to check out local auctions in your area!
How to Purchase Foreclosures
Cash is king- especially when it comes to REOs! It can be a tricky process to navigate, so make sure you communicate well with your real estate agent to get the right price for the property. Negotiation is key, so leave that expertise to your agent.
Often times, they need quite a few repairs, and banks typically don't want to lend for that reason. To better your chances and to be competitive, consider writing an offer with a cover letter. In the cover letter, write your willingness to accept the home "as is." To protect yourself, add verbiage that will allow you to leave the deal if a home inspection reveals more damage than anticipated.
Remember, paying with cash is easiest to do in this tricky process! It's also quick and clean when paying with cash.
Home Inspections on Foreclosures
You can still get a home inspection just to know as much about the property as possible before you close the deal. You can also make the deal contingent upon the inspection results. Most of the time, you're buying an as-is property and the lender won't do repairs. This ensures that the bank does not have any legal responsibility on the homes' damages.
It can still be important to understand the homes flaws and safety issues such as moisture, pests, leaks, and other unhealthy damage. Getting a home inspection can also help you make informed decisions on whether the home is a good fit for you or not.
Types of REOs
- FHA (Federal Housing Administration) Loan Homes that have gone through foreclosure becomes a HUD (US Department of Housing and Urban Development) REO property. HUD becomes the property owner, and they want to recover some of the loss that occurred during the foreclosure process.
- VA (Veteran Affairs) is the Department of Veteran Affairs. The US government assigned the VA to assist in helping veterans of the armed forces across the nation. These VA REOs have gone through a VA foreclosure. This happens when the homeowner has not made monthly payments towards their mortgage and the VA forecloses on the property.
- Bank-Owned REOs - owned by banks or lenders like Fannie Mae and Freddie Mac. These lenders are typically the original loan source. After foreclosure, the bank becomes the property's owner and try to regain some of the loss.
- Investment companies can also buy large pools of bad loans. An MTM agent can help you find REOs best!
Putting an Offer on a Foreclosure Home
It can take awhile to get a response from the bank to your offer because you're trying to purchase an REO foreclosure property. A foreclosure home may get multiple offers, and the competition can be tough. You'll have a greater opportunity to negotiate lower prices with homes that have been on the market for a longer period of time.
It can help to have your buyer's agent get the property history of the foreclosure to compare the prices that the bank is asking for. Your agent can also compare this price in an analysis of comparable homes in the local market. Your pre-approval letter may also heighten your chances of getting an accepted offer, especially if you don't ask the REO bank to pay for any repairs or inspections.
Closing on a Foreclosure Property
A lot of the times, instead of going to a title company, a remote closer will be sent to the bank, your real estate agency or wherever needed.
Title Work and Liens on a Foreclosed Home
Be sure there are no leans on the property. It's best to have one of our experienced MTM agents look over your contract and title work. Then, change your locks!