Foreclosures: Buying REOs in the Pekin Real Estate Market

REO is an abbreviation for a real estate owned property, and it indicates that a property has been foreclosed and is now the property of the mortgage lender or trustee. The lender or trustee has clear title to the property.

Mortgage lenders or trustees often end up with title to the property because its previous owners did not fulfill the terms of their mortgage (i.e. did not make payments), the property did not sell during pre-foreclosure, and there was no bid at auctions or the bids were too low to be accepted.

Advantages of Buying a REO

You might ask the questions: “Why would I want to buy a property no one else wanted?” “How is this considered a bargain?” Here are some answers:

If the previous owner had a second mortgage on the home and was not a party to the foreclosure, the money owed to the second lender is forgiven. In today’s market, it is very common for houses to have second mortgages of 20% or more of the original market value. This is a loss to the holder of the second mortgage but a gain for the buyer … a gain equivalent to the value of the second mortgage.

Banks are interested in recovering the principal owed on a mortgage… not the equity.  In effect, the equity transfers to the buyer.

Vacant property held by banks cost money and do not look good on the “books”.  Although a bank is not going to “give away” a property, it is likely to reduce the price at least by the amount of money it is spending to hold it month-by-month.

The buyer can negotiable with the bank regarding restoration costs, interest, closing points, loan amount, down payment, etc.

Banks have clear title to the property which, then, transfers to you.

Get a Qualified Agent to Represent Your Interests

Most banks have a department that does nothing but handle REO transactions. This department is staffed by expert lawyers, bean counters, and hard-nosed negotiators. They write their own contracts and make their own rules which, of course, favor the bank. Don’t think you are the David who can slay the mighty giant.

It is in your best interest to hire a real estate agent who understands the market and is as experienced in handing REO transactions as the bank employees. Shop around and find an agent who meets these criteria:

·        Is experienced in buying REO property

·        Does not (in any way) represent the seller

·        Will negotiate to be paid by the seller.

·        Will represent your interests

REO Property Buying Process

The process for purchasing REOs varies from area to area and lender to lender. However, this is the general process and these are some recommendations to improve your chances of having your offer accepted.

1.       Have your agent gather the answers to these questions:

• Has the property already been inspected and, if so, is the inspection report  available?
• Has the bank agreed to do repair or restoration work … or is it strictly an “as is” property?
• How long does the bank take to accept an offer?
• What is the procedure for making an offer?

2.       Prepare a letter of introduction to the bank which includes a summary of your credit history, employment, and other information that might make the bank more likely to consider your offer. Include a pre-qualification certificate or a pre-approval certificate.

3.       Discuss a reasonable offer with our agent and have your agent submit the offer according to the bank’s instructions.

Wait. Remember banks are closed on weekends and holidays and the offer often has to be reviewed and approved by several departments. In addition, the bank is probably working on several offers at once. Yours in not their highest priority. 

When the bank does reply, the reply may in the form of a “counter-offer” with a time limit for response. In addition, banks often attach a purchase contract to your offer. This purchase contract is unlikely to be in your favor.

4.       Discuss the counter-offer and the bank-written purchase contract with your agent and attorney.

If your attorney thinks the purchase contract is unreasonable, cancel your offer.

If your agent thinks the counter-offer is too high, make another offer.

5.       Wait for an offer acceptance or rejection.

Negotiating REO Terms

These are a few hints on negotiating with the bank:

·         The longer a property has been on the market, the greater the chances of getting it for a price lower than the asking price.

·         REOs property is usually sold on an “as is” basis. If there are no inspection reports available, attempt to make your offer contingent upon home inspection.

·         If possible, select you own title/escrow Company. Bank-designated companies often charge the buyer higher fees.

·         Consider that banks are reluctant to pay closing costs for the buyer. Also transfer taxes, county and state fees, pest reports and home warranty plans are the responsibility of the buyer.

·         If you cannot close on the designated date, the bank may charge a penalty for each day you are late. Make sure your financing is in place before you commit to a date.

·         If the bank rejects you offer and the property is still on the market 30 days later, resubmit the original offer with the date changed.

Summary

REO property carries little risk and can save the buyer a great deal of money. As the economy underperforms, more and more properties are owned by banks anxious to get rid of them. The negotiation, however, is best left to the experts … a qualified real estate agent specializing in REOs.

For a FREE list of REO properties available in the Pekin Real Estate Market, visit us at www.free4closedlist.com or www.livinginpekin.com.