Mary Fierro,Senior Real Estate Consultant - Bank Owned & Foreclosures, IRS Auctions and Sales

-Finding The RIGHT Investment property
-Providing local information
-REO Simplified
-5 Steps To Buying REO Property
-REO Vs. Foreclosures
-How To Buy Foreclosures
-Buying PRE-Foreclosures
-Please contact us for superior service!

What does REO mean anyway? How is this different from the typical buying process? When considering a REO property - as with all properties - it is important to be well informed so you're well aware of the process from the first handshake through the closing.

Q. What does REO mean?

A. REO is an acronym for Real Estate Owned. REO is a financial industry term referring to properties that an institution has foreclosed upon and now owns.

Q. Do I submit my offer directly to you the listing agent?

A. Yes, Banks only accept offers that have been submitted through the listing agent. We price our properties in accordance with the local market and expect to sell at market value. As with any property listing, our asking price takes into account its condition as compared with the local market.

Q. After submitting my offer, how long should it take to receive a response?

A. We will provide either an offer acceptance or counter offer to our listing agent within 48 hours of receiving the buyer's offer. As listing agent(s) will inform your buyer's agent of our response if you are working with a separate agent, or you directly. If an offer is submitted during the weekend, it will be reviewed on the next business day.

Q. What if the property requires repairs, either minor or substantial?

A. Make sure that you speak with the us-the listing agent(s) to ensure that you understand the terms of our listing clearly. In most cases, the property will be offered in an "as-is" condition, with the list price reflecting its condition. When purchasing a property "as-is," ensure you've done your homework to clearly understand the structural and mechanical condition of the building, HVAC, internal plumbing, the well and septic system. Depending upon the condition of these components of the home, the types of financing available may be impacted. However, there are special loan products available that will lend on the "after improved" value of the home thereby making it possible to purchase even the most neglected property and to make it the home of your dreams. For details, visit the Homebuying Resources

http://www.pasreo.com/reo/consumerSvlt/nav/ConsumerNavL1.jsp/requestPage/consumer/PropertySearch.jsp

How to Buy a Bank-Owned Property or REO (Real Estate Owned)

Three steps to finding a bargain

Under this buying stage, 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. At this stage of foreclosure, it's more likely the property will be listed for sale on the Multiple Listing Service used by real estate agents, so if you are working with an agent, ask him/her to check the MLS for bank-owned properties. To buy a bank-owned property that's listed on the MLS, contact your agent directly.

You can also contact lenders directly and ask for a list of their REO or bank-owned properties. You'll have to do some digging to find the department or person at the lending company or bank who manages repossessed property. You can also find properties online through services like wwwSeeRepos.com

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.
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, consult a local real estate agent or use online services like www.SeeRepos.com

3) Your agent will contact the lender to express your interest in seeing the property and making an offer.

Most Realtors have access to the local property assessor (either through county or city government) and ask who is listed as the owner of the property. The assessor should also have the owner's mailing address.

When you or your agent call, ask for the REO (Real Estate Owned) department, bank-owned homes department or asset management department. Be patient and persistent. A lender's main focus is lending money, not selling property, so it may take some time to get through to this department.
If you can't get through by phone, another option is to overnight or fax a letter to the lender stating your interest in the property. To stand out from other letters and requests, you can prove you're a serious buyer and include a check made out to a local escrow company in the amount of a small percentage of the total purchase price. This should be refunded if no transaction takes place.

REO vs. Foreclosure

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.

How to Break into the Foreclosure Market

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

REO Properties For Sale

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.

How Banks Sell REO's

Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."

Six steps to get you started

With mortgage interest rates at historic lows and a record number of homes falling into foreclosure, many real estate investors and homebuyers are pouring their money into the foreclosure market.

But it's not an easy market to navigate, so do your homework, be patient, learn the foreclosure process and most importantly, be persistent. Here are the steps to get you started:

How to Buy a Pre-Foreclosure House

Six steps to finding a bargain

The pre-foreclosure period -- when a Notice of Default or Lis Pendens has been issued -- can last several months, so buying during this time requires a lot of patience and persistence. Understand that the owner still has a chance to stop the foreclosure process by paying off what is owed or by selling the property. Here's what to do:

1) Find properties and look at them. If the house is not already on the market, you'll need to find distressed homeowners by marketing yourself through mailings, ads ("We buy homes fast" and "We have CASH for homes") and networking. You can also look for foreclosure notices in the local newspapers or subscribe to an online listing service like SeeRepos.com.

After you find a property, drive by it to get a better idea of its condition and neighborhood. This could facilitate a casual meeting with the owner or yield a wealth of unexpected information from a talkative neighbor. Remember, the owners are still living in the home, so be discreet.

2) Confirm that the property is still in default. Sometimes a homeowner has already resolved the situation. Contact the trustee -- the person or party (often an attorney) who is filing the paperwork to initiate and carry out foreclosure proceedings on a property.

3) Check the potential bargain. Gather this information:

Outstanding loan balance
Estimated market value
Other property liens and loans the owner may have taken out
History of ownership
Your monthly expenses as a homeowner (mortgage payment, taxes, insurance, repairs, etc.)

Subtract all your costs as a buyer (loan balance, additional liens, repair costs) from the estimated market value of the property, and use that number as a basis for your negotiations with the owner. This is all public information so you can research on your own with the county recorder, consult a local real estate agent or use online services like www.SeeRepos.com

4) Contact the owner.

Start by sending a letter. Let the homeowner know of your interest in the property.
Try to arrange a meeting to discuss a possible sale and to get a better look at the property.
For tips on how to work with distressed homeowners.
You can search for the owner's phone number if it's listed.
Don't approach the owner in person, unless you're experienced at doing that.
Arrange to walk through the property to make sure it meets your criteria as a buyer.
Depending on the owner, you may have to buy the property "as is." For more on buying "as-is,"
Keep a tab of estimated repair costs and subtract them from your purchase offer. Your willingness to put some "sweat equity" in the property will increase the chances of realizing a good bargain.

5) Negotiate a purchase agreement. If you and the owner both agree to proceed, negotiate the terms of a purchase. The goal for you as a buyer is to purchase a property at least 20 percent below full market value, though better deals are possible. When determining the final purchase offer, take into account the rate of real estate appreciation in the area and the potential for increasing the house's value by making repairs and improvements.

Contact the foreclosing lender and any other lien holders and let them know you plan on buying the house. You may be able to negotiate a lower payoff amount to satisfy the debts owed, meaning you may not have to pay off the entire debt amount. As real estate agents, we can also be a valuable resource during the negotiating process.
If the loan in default is assumable, you may be able to pay off the amount in default and take over payments under the current terms of that loan.
If not, you will need to pay off the full amount owed on the loan. If the property has other liens placed on it, you'll need to make sure those are cleared out as part of the purchase agreement.

Homeowners might be more willing to work with you if you offer to help them in creative ways. Consider these:

If the owner has equity in the property above and beyond the liens, offer to split the equity with them, allowing them to walk away with cash and you to acquire a property below market value.
Let them stay in the house for a certain amount of time (possibly paying rent) until they find a new place to stay.
Pay their housing costs for the first month or more after they leave the property.
If you're purchasing the property as an investment, you may let them stay and pay rent until you decide to resell the house.

6) Close the deal.Once all parties have arrived at an agreement, put the agreement in writing. If you're not familiar with how to draw up a purchase agreement, ask a local real estate agent or real estate attorney. 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.An escrow company, who 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.

Remember, a property in pre-foreclosure status is not necessarily for sale. The owner may be pursuing other options to cure the default; however, an offer from a pre-qualified cash buyer may be the best solution to get the owner out from under the impending foreclosure. You can also make an offer to the owner prior to the scheduled auction date even if the Notice of Trustee Sale has already been filed.

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