Purchasing Bank-Owned Properties – The Good, the Bad, and the Ugly

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In many parts of the United States buying a foreclosure is en vogue. Buyers flock to these properties because they are allegedly a great deal. But, are they?

While each and every foreclosed property listing is different, there are quite a few considerations with respect to purchasing a bank-owned foreclosure (REO). And, sadly, not every bank-owned property is a great deal!

Here are some things you may want to consider when purchasing an REO:

  • In parts of the United States, there is great competition for REOs. Do you really want to compete against so many other people to buy the foreclosed property? (Competition drives up the purchase price.)
  • Are you qualified to go high enough in your offer to compete with the others or is your first offer your highest and best? (Again, competition drives up the purchase price.)
  • Will your offer be strong enough? (If you are obtaining an FHA or VA loan and putting little to no money down, your offer may not–unfortunately-be competitive.)
  • If you are financing the property, will the property pass inspection? Fixers, for example, may not pass inspection. (FHA and VA loans require a property inspection and the property must meet specific guidelines.)
  • If you are financing the property and it is in a Homeowner’s Association, will the lender approve the purchase? (Lenders now look at association delinquency rates and pending litigation when agreeing to loan on a property.)
  • Once your offer is accepted, will the property actually appraise for the purchase price? What will happen if it does not? (If the competing offers drive the price very high, the new purchase price may be actually higher than an appraised value. If you are getting a loan for the purchase, this factor may impact your ability to obtain financing.)
  • Will the bank be able to transfer title? (In this day and age, some lenders are finding that they are unable to transfer clear title on some properties.)

There are so many factors to consider when purchasing a foreclosure. While the purchase may be a great deal, make sure that all the cards are on the table and that you have considered all of the factors that could impact your property purchase.

Photo: BasicGov

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.

2 Comments

  1. No Name Given on

    Sometimes in our wish to acquire a property at a reduce cost, we are blinded by the fact that the properties might have liens on it. We just realize it when we are already trapped by our own ignorance of some facts. Popular principles like “caveat emptor” and “caveat venditor” should be cautiously observed. In buying a property, aside from the financial aspect of the situation, I think it is necessary for a buyer to be aware of the sellers legal capacity to sell – his right over the property. One should also try to make a research on whether or not the title of the property is clear. This way, you will / you can avoid one of the hassles of buying properties.

  2. purchased 3 in 1 yr. the process is not that much different than a non foreclosure house. you worry about the appraisal in both cases. but i had to get certificate of occupancy before i rented them out. i would not have to do that on a normal sale.

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