REO foreclosure experience?

Question

Any body willing to explain the process of buying bank owned foreclosures? Pros and cons, or some of the things to look out for as a brand new investor in the eastern North Carolina area. Any help is appreciated, thank you in advance.

Account Closed · Answer

I've bought a bunch and its been a primary way I got rentals until the market got really strong.. .

You can buy foreclosures at different stages of the process, if its truly REO that means the whole foreclosure has ended and the bank holds title now.

If its still occupied/secured and you cannot get inside to inspect, its a huge gamble. I would advise not proceeding unless you are a contractor or someone who can fix up just about any issue with a house. Assume it needs EVERYTHING inside.  If its occupied you will also need to boot the current occupants, and that process and all its pitfalls are dependant on state/local laws.  You should also do research on the occupants to see what kind of people they are and what you might be in for.

If its on the MLS and you can get inside, its not too different than any other home on the market. They will indicate if you can use financing, and you can go inside and inspect and do all your due diligence like normal.  In my experience, if its REO and you tell the bank you have cash and they accept your offer, they will want to close very quickly.

Make sure the title is conveyed to you in the strongest possible deed type, if its just a quitclaim deed I would be wary. Not sure what NC deeds exist.  I would get title insurance.

You may have to use their title agency, or else they may offer to pay for some closing costs if you use their title agency. It may not be a bad idea to decline that offer and pick a reputable local title agency, and get the title insurance through them -- instead of what the bank is offering. I have been lucky so far but I have been told this advice a few times.

Kenneth Garrett · Answer

@Brandon Shane Baker

I have bought plenty REO’s.  You must see the inside.  Do not trust the photos only.  Some have no kitchens, no furnaces, 4 feet of drywall missing on the bottom of wall to remove the mold.  Pictures are artfully taken.  You will probably end up in highest and best offer since competition is fierce right now.  Most are vacant but not all.  Many have no utilities on. I’ve gotten some good deals this way.  It’s a great concept for the BRRRR strategy.  Do your homework on rehab numbers.  Otherwise it’s just buying an investment property.

Lynnette E. · Answer

I have bought several houses this way.

1.  If you can see the house inside, its not much different than buying any other house, except it may be a bidding type process and they will not do any repairs and they often require cash, not financing, but not always.  Also they will have very one sided contracts that you must use.  NEVER use their title insurance, they miss things and are often located in places like INDIA.  Poor communication, poor English, no follow through.  For one of the properties I bought the County docket did not have the power of attorney paperwork for the foreclosing agent--major title problem. He had no legal right to foreclose on the property because they did not file the paperwork.   Their title insurance said all was ok, they did it right, the paper is somewhere.  MY title company made them produce it and place it in the record.  Took WEEKS for them to get it, and understand that we can not close without it as it was very important.

2.  If you can not go into the house, its a gamble.  you may win many hands, but eventually you will loose.  Don't do it if you can not take loosing because eventually you will!  But you can also win big time this way!

3.  If they do not want you to go into a property and its NOT occupied, know that they were in that property and there is a reason they do not want you in it.  Floors falling in, mold, something.  If its occupied, they may or may not know anything about the occupant, but they won't tell you---even if they have a contract with the occupant.  I bought one house and the bank has an agreement for 2 registered sex offenders to live in the house--THE BANK signed the agreement and left me with getting them out.  And they rented it for $350 a month and I had to pay for their water, sewer, trash, gas, and electricity!  I lost money each month just on the utilities!

4.  Bid with an understanding that there will be issues.  People who were foreclosed on did not maintain anything.  Even if the property is occupied, it will have problems.  Some people will live in a place with leaking roofs, no heat, leaking plumbing, etc.   That registered sex offender house?  I am still looking at what to do with it, if it can be saved or just level it.  Its needs are beyond my abilities.

5.  There are no disclosures.  It is buyer beware at the extreme.  Flood plains, asbestos, building issues, nothing will be told to you.

6.  Know what bills are paid and what ones are not.  Often trash, water, civil penalties, government fixes such as weed abatement, building violations, taxes, HOA/PAO bills are not paid and become your bills.

Patricia Taveras · Answer

@Brandon Shane Baker

Hi Brandon. I bought one foreclosure.  It was a HUD foreclosure.  I used a realtor for that.  Even though I have bought several houses now without a realtor, I would use one for a foreclosure.  They'll know the offer process.  Foreclosures aren't as common as they used to be.  Expect competition if you find a good deal.  That's my two cents!  Good luck!