Foreclosure Overview

In California, when a borrower takes out a loan to finance the purchase of real property, the real property will almost always be used as collateral, through a Trust Deed. If the borrower doesn’t make the payments on the loan, after a predetermined amount of time, the lender has the right to foreclose. When the foreclosure process is complete, the property becomes a bank-owned property; also referred to as Real Estate Owned (REO).

Lenders are in the business of lending money, and are not interested in managing the underlying asset that was pledged against the loan (in this case a home). When a home has been foreclosed, the lender wants the asset liquidated ASAP! Asset liquidations are done through a sale of the property.

The majority of bank-owned property sales are conducted through real estate brokers, who usually list the property within their local Multiple Listing Service (MLS) and market the property using traditional real estate marketing strategies – open houses, direct mail, newspaper advertisements, etc.

Since many of the recently foreclosed homes are listed on local Realtor® MLS systems there’s a good chance you can find a great deal without resorting to some get-rich-quick scheme. Bank-owned / REOs represent a tremendous opportunity; however, not all Bank Owned / REO properties are bargains. You need to consider the location, condition of the property, recent comparable sales versus list price, market trends, interest rates, rental market conditions, and other factors when making a purchase decision. Armed with the right information, you can profit from this incredible opportunity.

Working with a knowledgeable, experienced real estate agent is critical when evaluating an REO property. You want to work with an agent who knows the local market, understands REO transactions and is familiar with presenting and negotiating an offer to a bank on a REO property.

A few things to consider when purchasing a Bank Owned / REO:

Most REO property is sold in “as-is” condition. Banks tend not to negotiate for repairs on the property once it’s in contract. Therefore, your purchase price should reflect your anticipated costs of repairs. It’s highly recommended to inspect the property prior to submitting an offer.

When a lender takes the property back through the foreclosure process, junior liens such as secondary loans, home equity lines, etc. usually are cleared from the property’s title. Most, but not all, lenders will also pay delinquent taxes. It’s extremely important to understand what other encumbrances may remain on the property’s title. When you are buying a foreclosed property your lender will help scrutinize the property’s title. If you are purchasing the property without a lender, make sure you seek legal advice on interpreting the title report. Also, make sure you purchase a title insurance policy.

Although there are hundreds of foreclosed properties on the market, there are other astute investors hunting for bargains as well. Don’t be surprised to see multiple offers on a property that’s priced substantially below market.

Foreclosed properties are also sold through auctions and “private-party” transactions which may, or may not, be found on my Weekly Foreclosure List.

My Weekly List focuses on foreclosed properties in select markets of the S.F. East Bay. These are markets in which I actively work as a full-time Realtor®. All properties on my Weekly List are Bank-Owned / REOs listed for sale on the Contra Costa MLS.

When you find a property on my Weekly List that looks like it might be what you’re looking for, give me a call or drop me an e-mail. I’d be pleased to show you the property or answer any questions you might have about how to buy a Bank-Owned / REO property.

Mark Darfler, Realtor - Your Bridge to a Successful Move.

Mark Darfler's Real Estate Web Site: www.darfler.com
LinkedIn: http://www.linkedin.com/in/markdarfler