What you need to Know About Bank-Owned Properties or Real Estate Owned

A bank owned property is a real estate situation when the lender or bank has taken ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction. REO means "real estate owned" by the lender and indicates the house has already gone through the foreclosure process and has been repossessed by the lender.

The lender usually sells the property to recover the unpaid loan amount and typically clears the title for any buyer. But the potential bargain is often less than a pre-foreclosure or auction property. Here's how to buy bank-owned properties or REOs:

1) Find properties and look at them.

This web site is ideal for find a bank owned real estate opportuntiy. Simply click on the "Home Seach" buttom above, type in the city you desire, then narrow your search by choosing your filters. Select search and you are on your way!

Once you identify a property, drive by it to get a better idea of its condition and neighborhood. You may find notices posted about the lender who owns the property or signs that show the property is listed with a real estate agent. Take lots of pictures and notes.

2) Check the potential bargain. Gather this information:

  • Bank's break-even amount -- includes the unpaid balance of the loan, any fees and costs incurred during the foreclosure process and any other liens the bank had to pay off to take ownership of the property.
  • Estimated market value -- simply click on the "Instant Home Value" button above.
  • Your monthly expenses as a homeowner (mortgage payment, taxes, insurance, repairs, etc.)

Subtract all your costs as a buyer (break-even amount, additional liens, repair costs) from the estimated market value of the property, and use that number as a basis for your offer to the bank. This is all public information so you can research on your own with the county recorder or take the path of least resistence and consult The Alan Canas Team at 650.403.1222.

3) The Alan Canas Team with contact the lender to express your interest in seeing the property before making an offer.

A partnership with The Alan Canas Team will insure your best interests are exceeded. They know the nuances of these complicated transactions and will help make a REO transaction and positive one.

4) The Alan Canas Team will negotiate a Purchase Agreement that is in your best interest.

Once The Alan Canas team makes contact with the bank's asset manager or REO officer, they will arrange to walk through the property  to make sure it fits your criteria as a buyer. If both you and the bank agree to proceed, the Alan Canas Team will negotiate the terms of the purchase agreement.

NOTE: If you live in a state that allows a redemption period for the owner after the bank takes ownership of the property, you may have to wait several weeks or several months, depending on the state, before the bank is willing to sell the property. During the redemption period, the owner can regain ownership of the property by paying the total amount owed to the bank plus any applicable foreclosure expenses.

The bank's primary goal is to at least break even on all the costs that it has sunk into the property. That includes the unpaid balance of the loan, the expenses associated with the foreclosure proceedings, other liens and repairs to the property.

Your goal as a buyer is to purchase the property below market value, minus any estimated repair costs. This is often possible if you contact the bank quickly and are a prepared buyer ready to make a purchase.

To get a better bargain, consider these:

  • Buy the property "as is." 
  • Prove you have the financing and can close quickly. Pay with cash or show your pre-approval letter. Be ready to show proof of income.
  • Work with lenders that have a glut of foreclosures. These are non-performing assets from their perspective, so unloading them is to their benefit.
  • Utilize the relationships that The Alan Canas team has built. Let the asset manager or REO officer know to contact The Alan Canas Team in the future if the bank needs to quickly unload foreclosure properties.

5) The Alan Canas team will close the best deal possible on your behalf. Once you've arrived at an agreement with the bank, an agreement will be put in writing by the The Alan Canas team. The purchase agreement should make closing the deal contingent on 1) a full title search conducted by a title company or attorney and 2) a professional inspection of the property (even if you're willing to buy the home "as is," you may find out there's a foundation problem and choose to end the deal).

An escrow company, which acts as a third party, can manage the transfer of money and property ownership. Assuming that you have your financing secured, this should be a fairly smooth process.

There is no set time frame within which the banks must sell their REOs. However, banks often want to get REOs off their books rapidly. As a result, many REOs sell quickly.