Buying Lender-Owned Property
Lenders are prohibited by law from negotiating with prospective buyers for any property currently in foreclosure.
Buyers calling lenders-- with offers to purchase homes --- before the lender has legally re-possessed the property --- are routinely ignored ("tampering").
A property that has been repossessed or reverted back to a lender is often known as a “REO" (Real Estate Owned).
The reversion occurs after a public auction. Most auctions lack buyers for the “opening” or “minimum” bids. If no bids are received, junior liens (mortgages) are erased from the chain of title and the lender receives the deed to the property.
The minimum bid includes the outstanding loan balance, past interest payments, legal fees and costs incurred during the foreclosure process. Often what is owed is more than the property’s value.
The lender then receives title to the property, and (usually) evicts the occupants. The eviction process begins virtually the next business day. During the eviction process, the HOA (if any) is contacted and past association dues brought current.
After the lender (finally) gains access to the home, an assessment of the condition is made and the lender's in-house real estate representative is brought in to handle the marketing of the property.
Bank owned property selling for a 20-30% discount is a myth. Lenders are not in the business of fire selling their assets.
The banks goal is to sell at market value!!
Your goal is to get the best price possible.
Start by verifying the offer price you are considering is LESS than similar homes in the tract.
Calculate the costs and time involved in renovation. Don’t get emotionally attached to the home or engage in a "bidding war" with other buyers.
How Lenders Sell REO's
Every lender's "selling protocol" is unique. Lenders have entire departments (Loss Mitigation) set up to manage their property portfolio (and to seemingly frustrate buyer’s agents and brokers alike).
Don't Give Up! ... Lenders are becoming more reasonable.
The process begins with the buyers making an initial offer to purchase; then, the lender presents a "counter-offer." The buyer counters the counter. And the waiting process will drag on while the offer winds itself through the maze of bureaucracy. All the time the lender's broker is marketing the property hoping for a better price.
In order to get your price accepted...you need to be able close without "contingencies."
Property Condition
Lenders sell their REO’s in "as is" condition. All lenders will provide a termite clearance. Lenders will always allow you access for the any other inspections (at your own expense).
Your offer should include an inspection contingency that allows you to terminate the offer if the inspections reveal unanticipated damages.
Lenders are exempt from the California Seller’s Transfer Disclosure Statement. If there are real estate agents involved (either representing you or the bank) those agents are required to provide you with their disclosure statements.
Lenders are precluded by the regulators from providing financing on their own REOs due to past abuses by lending “insiders." But they may dictate which institution you may finance the purchase through.
To limit the bank's liability --- ALL banks require BUYERS to make their offer through an agent/broker. No offers will be accepted directly from a buyer. You may have your own agent or broker (recommended) AND it will NOT affect the "price” the bank agrees to sell at.
THE LENDER HAS ALREADY FACTORED IN THE COST OF THE BUYERS BROKER WHEN THEY SET THE PRICE ... IN THIS CURRENT ENVIRONMENT ('08) VIRTUALLY NO LISTING AGENT SELLS THE HOME TO THE BUYER.
THE BUYER HAS THEIR OWN AGENT AND THE BANK FACTORED THAT IN...WHEN THEY SET THE SALES PRICE.
Before making an offer, make sure your agent contacts the listing agent and ask the following:
Be prepared to answer the following questions from the bank’s agent:
Lenders are apathetic (at best) about pre-approved or pre-qualified loan applications. To get the best price—be prepared and able to close escrow within 10 days. This cuts the lender’s foot-dragging to minimum.
In Conclusion
All of the lenders have affiliated relationships with local contractors. It is best to negotiate with the lender BEFORE THE HOME IS RENOVATED. Typically a home that has been renovated by the lender is done with cheap and shoddy materials.
If you are looking for a “good deal” buy the home before renovation.
You’ll be able to supervise the quality of work and materials.
Investors Mortgage
1300 N. Bristol Street, Suite 100
Newport Beach, CA 92660
Business: 949-250-3981
Fax: 949-716-4474
