Buying REO's

The property I'm interested in was just recently bought back by the bank at auction. I will be attempting to buy it from the bank but would like to know at what point in the process is the best time to start making an offer with them. In my state after the auction, it takes approx. 30 days for the judge to put his final seal of approval on it (ratification period). Do I try to deal with the bank while it's in this ratification stage or should I wait until the bank officially owns the property back? What type of settlement does the bank go through when they've bought the property back? And regarding mortgage insurance claims when they have for take a loss, at what point can the mortgage company file a claim and for what $ amount? And, is there anything I should "watch out" for when dealing with REO's? Thanks for any suggestions!!!

Comments(5)

  • dheckel20th May, 2003

    Sorry to post a reply that doesn't address your q but I have seen "REO" all over.

    REO=???

    Thanks
    Don

  • hibby7620th May, 2003

    Lending instituitions have a division that deals with propertys that the bank owns due to foreclosures. This is the REO department, which stands for "Real Estate Owned".

    For reasons that I don't fully understand, they want to get the properties off their books as quickly as possible. I think that for each dollar that they have tied up in a property, they CANNOT lend out 7 dollars, and they're in the Lending business, not the RE business.

  • dheckel20th May, 2003

    Thanks for the enlightenment Hibby.

    Don

  • Dural20th May, 2003

    The only advice I can offer is to find out as much about the Bank's criteria and sale process as possible. A common misconception when buying from the Bank is that your objective is to pummel them with hard-core negotiation tactics until they submit to an ultralow offer. Negotiation skills certainly have their place, but you ultimately want to approach them with the same respect that you would any business transaction. If you do that, they will be happy to work with you again. I have even heard of REO departments calling their favorite investors to let them know of a property before listing it with anyone else. As always, repeat business is a beautiful thing when everyone makes money.

  • KP21st May, 2003

    Great point abount not beating up the banks in negotiations. Working with them is creating a win-win and that's the golden rule of REI.

    As for Hibby's point about banks not wanting REO's on their books it has to do with their charters. Federal law restricts the type of businesses that can be in one entity. They are in the family of anti-trust/monopoly laws. In short the banks/lenders are in the business of lending money and it is a conflict of interest if they are also in the business of owning property. (think of the great discounts on property they could get by making risky loans and then foreclosing.) So when they have too many properties on their books it starts to look like they are in the business of owning properties. Also if they foreclose too much and end up with props then the look like they are making bad loans and their bottom line is in question. This is a gross simplification of the picture but it is accurate enough to get the idea.

    So the motivation of the banks to sell the properties at a discount is fairly straightforward - if they keep too many in their inventory the feds are gonna get 'em. But also remember that there are a number of REI out there that are willling to buy them so the banks are often not desperate.
    [addsig]

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