I’m sure you have seen the late night infomercials and heard stories about people making a lot of money from buying foreclosed homes. Generally they tell you how easy it is and that you can buy these properties from the bank for pennies on the dollar. It is true you can make a lot of money investing in foreclosures; however it is never as easy as the stories make it sound.
Most people do not know where or how to get started and often times get discouraged before they even buy their first property. We are going to start out with the basics on how properties become bank owned and how you can find them.
In California which is a deed of trust state there are a generally only two ways that lenders can get the property back from a borrower.
Deed in lieu of foreclosure – This is when a borrower will give the property back to the lender to satisfy a loan in default and to stop foreclosure proceedings. This is a lot less common then the property being foreclosed. There are several advantages for both borrower and lender. The main advantage to the lender is they get the property back much sooner than foreclosing and the borrower will avoid the public embarrassment of a foreclosure.
Auction – if a property goes up for foreclosure sale and no one is willing to pay the minimum bid then title will be transferred to the beneficiary (lender) and the property is now REO. It is not un-common for properties to not sell at auction. In most states to bid you are required to have certified funds, such as cashier’s checks or cash. The recent trend is borrowers will owe more than the home is worth. The minimum bid is typically close to what the foreclosing liens balance is plus fees & backed interest. So there are not as many deals at auction as you would think.
Once the lender is in control of the property they will work with an asset manager to get the property sold ASAP.
How does the lender establish a listing price?
The asset manager will hire a local appraiser or a BPO agent to give them their opinion of value. The asset manager will often order a second opinion of value to reaffirm the first. While they are doing that they will be looking for a local agent to market the property for sale. Sometimes this process can take a couple of weeks or even months.
Insider Secret: Most of the lenders will post a list of their REO properties on their website. See our list of lender websites to find REO properties before they are listed.
As soon as the asset manager has arrived at the listing price and contracted with a local agent to list the property, it will be posted on the local MLS. This is the point where most investors will find out about the properties and it can get pretty competitive depending on how good the deal is. The trick is to find out about these properties as soon as they are listed if not before.
Insider Secret: With our VIP Buyer Service you can receive these listings as soon as they hit the market. We will send all REO properties straight to your email inbox within minutes of being posted to the MLS. Sign up here!
Now you have a basic understanding of how to find bank owned properties. In the next posting we will discuss what to do when you find a screaming deal and how to make it an even better one.
We encourage your comments and questions.
You write very well.