Buying bank owned properties
There is a lot of interest in buying bank owned or short sale properties these days. A lot of information, some good and some bad, is floating around about the subject.  Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”.  The fact is that there are no secrets, and to make money does require effort.

What's a "Short Sale"? A short sale is when a property owner owes more than the property is worth, and cannot continue to own the property for what ever reason, such as inability to make the payments, job transfer, etc. The property owner contacts the bank and negotiates to allow the property to sell for less than the balance owed, thus the term "short sale". In these cases, the property owner is required to fill out multiple documents for the bank proving hardship. Then, the property is typically listed for sale (if it is not listed already) at a reduced price. All offers are submitted subject to bank approval. So the seller really has no choice in which offer is accepted. Sometimes the difference between what is owed by the seller and what the bank accepts is forgiven by the bank. Other times there is a judgement against the seller for the difference. Again this can vary from bank to bank

What’s an REO?
REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as a property up for foreclosure auction.  When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO’s may be exempt from normal disclosure requirements. 

Is it a bargain?
It’s commonly assumed that any Short Sale or REO must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a Short Sale or REO if your intent is to make money off of it.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering the value of a Short Sale or REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are also many Short Sale and REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a Short Sale or REO department that you’ll work with in buying a property from them.  Typically the Short Sale or REO department will use a listing agent to get their  properties listed on the local MLS. Since banks almost always sell properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.  As with making any offer on real estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender.  After you’ve made your offer, you can expect the bank to make a decision between several offers on the table. Realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends.  This process can take up to 6 weeks, depending on the bank involved.

I have experience in these types of transactions and would be happy to assist you as a buyer or a seller in Short Sale or REO situations.