Bank owned properties are quickly becoming the preferred type of real estate investment amongst investors. Although these homes typically require repairs, they are priced below market value and sold with a clean title; allowing for quick transfer and elimination of problems commonly associated with buying foreclosure realty.
Bank owned properties can consist of residential homes, commercial real estate, or vacant land. Once lenders repossess real estate the properties are first listed for sale through public foreclosure auctions. Investors who buy homes through auctions are responsible for removing tax liens and creditor judgments, as well as eviction of tenants who refuse to vacate the premises.
Auction prices only encompass the amount owed on the first mortgage. If more than one mortgage is in place, buyers must enter into negotiations to pay off the outstanding note balance. This can be a lengthy and expensive process that slows down property transfers.
Another downside to buying foreclosure real estate is many states grant a redemption period which gives foreclosed property owners the opportunity to buy their house back from the winning bidder. Property transfers can be suspended for 30 days or longer when redemption periods are in effect.
Investors are now turning to bank owned homes as an alternative to buying foreclosure real estate through auctions. Although the cost of bank owned properties is higher than foreclosed homes, investors can take immediate possession and begin generating income.
One of the biggest challenges investors face is negotiating the asking price. Once lenders take possession of foreclosed properties they list them for sale through their loss mitigation division or local realtors. Their primary goal is to obtain the highest price in order to offset losses incurred by the foreclosure process.
Banks rarely reduce prices of newly listed foreclosures unless substantial damage is found during property inspections. In order to obtain the best price it is best to scout out properties which have been on the market for 31 days or longer. Loss mitigators are generally more open to negotiate prices when distressed properties have been on the market for several months.
Investors who buy houses with cash usually have a better chance of obtaining reduced prices because they can take immediate possession. Most banks require buyers to obtain preapproved financing prior to submitting bids on bank owned properties.
One lesser known option for buying bank owned homes is Fannie Mae’s Home Path Mortgage program. In addition to offering a low down payment requirement of 3-percent, investors may also qualify for Neighborhood Stabilization Program grants offered through the Department of Housing and Urban Development.
Real estate investors can apply for up to five NSP grants. Funds are provided to qualified applicants who purchase real estate in areas with substantial amounts of foreclosed properties. Investors must utilize NSP grants to rehabilitate the house.
Locating exceptional bank foreclosure deals does require time, but can provide substantial savings. It is not uncommon for bank owned properties to be listed 20- to 30-percent below market value. However, investors must conduct due diligence to ensure the property doesn’t require extensive repairs that can deplete savings.