Foreclosures
How To Buy Bank Owned Properties
The Thirteen Step Process For How To Buy Foreclosures You Want For The Price You Want to Pay
Buying bank owned properties is slightly different than the process of purchasing a new or previously owned home from a builder or private party. In this article I will tell you how:
- to buy the home you want;
- negotiate the lowest price;
- do this with the least amount of hassle.
Real Estate Owned (REO) are properties that have been seized from a borrower by a lender due to a defaulted debt. Buying them involves a different process from buying a home from other sellers. They are very different from negotiating the purchase of a other distressed assets classes. Because a lender is now the owner you have fewer people that you will need to negotiate with by at least one. Fewer decision makers can mean that it is easier for you. Most loans today are sold to investors after being created. They are then placed into groups to be used as assets secured in the sale of asset backed bonds. When the party that owes the loan enters into the process of default and forfeits ownership they are no longer able to speak directly with the lender. They are usually negotiating with a loan servicer or a special consultant known as an asset manager. These are guns for hire who are given guidelines to follow and are told to collect the debt. They are not interested in modifying the borrowers loan.
Once the lender has taken over the property through a trustee they special consultants who hire brokers, other professionals and contractors to value, sell the property, manage it, make repairs and do maintenance, if any. Very often, the prior owners leave the property partially vandalized or uncleaned to show their unhappiness toward the lender’s action.
But who exactly is the lender? We can rightfully feel sorry for the families losing their homes. Maybe we don’t feel sorry for the lenders who have lost their businesses but it very often true that the originating lender and the first lender that purchased the loan have gone out of business or are in receivership themselves. Most often, the loan remains placed in an asset pool managed at the highest level by a trustee in a bank trust department for the benefit of bondholders. The trustee is responsible for hiring loan pool servicers who hire the rest of the actors in the play.
The trustees are legally bound to carry out the provisions contained in what is called the bond indenture. This is the legal document written by bond counsel for the issuer of the mortgage backed bonds. The home buyer seeking to purchase home foreclosures must ultimately satisfy the legal requirements of this indenture or contract and the efforts of the trustee to serve the bondholders. The overwhelming majority of bank foreclosure buyers are unaware of this critical fact. This explains why very often the negotiator for whoever actually owns title from the foreclosure sale is never revealed or will speak directly to agents for buyers.
The savvy seeker of homes in foreclosure will simply take this into account and not be phased by what happens next in the home buying process. Knowing the motivations of the parties on the other side of the table is the salve that will save you countless frustrations and hurt feelings. Asset managers, listing agents, loan servicers and specialized negotiators will give you what you want, the right home at the right price in the least amount of time with the least amount of hassle in you learn to understand what they really need. It is not their money and they do not take offers and objections personally. They are doing a job under heavy supervision and with strict guidelines.
Here are the thirteen critical steps that any buyer must complete in order to achieve the three objectives stated at the beginning of this article:
- Choose a real estate broker who can demonstrate their expertise in buying bank owned properties and can show you the methods he or she uses to complete the nest 12 critical steps. Ask for testimonials from previously satisfied clients. Ask them to show you how they will help you complete the important steps explained here.
- Research the market environment. Are home values in your target area rising, falling or flat?
- Search foreclosures for sale that meet your initial criteria for location, finished area, lot size, number of bedrooms and baths and style. Obtain foreclosure listings of foreclosures in your priority neighborhoods just like you would prioritize neighborhoods for any other home search.
- Tour homes on your list. You can search for REO homes on a number of website search engines but it is best to select a broker develop a list of free foreclosure listings from the first-rate search capabilities that a foreclosure buyers agent will have access to. Ask your buyer specialist to update your target list daily with new foreclosures.
- Select the best 5-6 homes that best meet your criteria. The more the better. Is is always attractive to get attached to one “dream home” but this is detrimental to your nest egg. Be objective as you can. The dream home effect will usually not last many months beyond the move in date and it is usually true that all of the homes that rise to the top of your list can be very fitting for you.
- Compare your priority list with each other and what foreclosure homes have actually sold for in the area. Ask your agent to show you the bid/ask spreads exclusively for these types of homes in your neighborhood. This will inform you of how much you may be able to save on your offer.
- Offer at the same time for at least the top three homes on your list. Options and actionable alternatives give you negotiating strength.
- Negotiate. Give yourself permission and enough time to make at least a couple of counter offers. This is another area where an experienced buyers agent can make all the difference. Your broker must be able to assess the features of the home for which you have made an offer that will lessen the value of the home in comparison to similar offerings in the neighborhood. They should do this at least with a comprehensive list of the defects and preferably with photos and a video to be used as supporting evidence for your offer. The asset managers and servicers attempting to liquidate the property should already have done this in the process of obtaining a brokers price opinion or BPO. Most of the time however, listing agents are paid very little for providing BPO’s and have less incentive to thoroughly inspect the condition of the property. They and the asset managers are also not very interested in knowing about or discussing defects because they would then have an obligation to disclose them to prospects thus lowering the possible yield on sale. Commissions are also often based upon a sale close to or above the estimate of value contained in the brokers price opinion.
- Confirm. Do hire professional inspectors to investigate your best deal thoroughly before your final decision to buy. Make good decisions about what you must be prepared to repair or upgrade when buying a distressed home.
- Perform. Carry out the provisions of the purchase agreement in a timely fashion. Insist that your buyer agent keep you apprised of any hitches in the giddyap, explain to you the source and what the alternatives are to correct.
- Finish. Make sure that you do not negotiate over you true capabilities or comfort level. After all, you do not want to be the next family to lose that home.
Don’t forget. Selecting the best buyer’s broker is the critical step in learning how to buy foreclosures the right way and to build the team of professionals to help you do it. Refer back to this article as checklist to speak with brokers who can offer to help you.
