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    What You Need To Know About Bank Owned Property

    Before you rush out and buy any of those bank owned investment properties at supposedly bargain prices, prepare yourself by looking at these facts. First of all, how does property come to revert to the bank? It all began way back when the owner defaulted on his repayments. This can happen for any number of reasons and it is not good policy to judge anyone for defaulting. Maybe there was a car crash and the hospital cost all he had to spare. Whatever the reason, he couldn't keep up the payments on the mortgage, so the company foreclosed. This means the property had to go through a foreclosure auction. But wait, there's more - bad news, that is. There is not much equity in this property, otherwise the owner would have sold it himself and paid off all his debts, wouldn't he?

    So when the property goes to auction the minimum bid to start off the selling will include the loan balance, any accrued interest, attorneys' fees and other costs to do with the preclosure process. It could be a large amount and if you are there to bid, you will have to have the whole lot sitting in your pocket ready. That puts most buyers off to start with. But just supposing you were able to arrange this, what happens next? You would have to accept the property 'as-is', meaning with other debts attached to it and even the owner still living there. Doesn't sound a wonderful proposition, does it? That's why so few properties actually sell at the foreclosure auction. So in the end the property reverts to the bank. It is now called a REO (real estate owned) property.

    So now the bank owns it, the mortgage no longer exists; the bank evicts the tenant and may even do some minor repairs (but not often). They negotiate to get the tax lien removed and they even pay any homeowners association dues. That's the bank, but how about you? Still interested? The property sounds much more desirable now, but therein lies the problem.

    The bank will not give this property away after what it has cost them. They have very often had to set up a whole department just to look after these REO's. So when you make an offer for an REO property, expect the bank to make a 'counter-offer' straight away - which will be higher than you expected. They have to be seen to have tried to get the best price they could on it. Their auditors, shareholders and investors all expect it. Of course you don't accept their counter offer, but counter it with another of your own. This could go on for a long time, but if your offer is eventually accepted it will most likely be 'subject to corporate approval', because being a bank there are many individuals and companies involved to approve it.

    When you make an offer, remember to include your own 'subject to inspection', etc. You don't want to purchase it only to find the repairs needed will blow your budget costs sky-high. Although banks are not keen to spend anything on repairs themselves, they just may agree to give you a credit after your inspections just to save the transaction. Nothing ventured, nothing gained!

    Remember when trying to get this deal off the ground that there is no face -to-face contact and banks close on the weekends and in the evening, so it will all take longer. It makes sense then to make your offer as easy as possible for them to accept by getting your listing agent to use a pre-approval letter and buyer biography. And remember, REO's sell at market value so are not the great bargains they are presented as on TV.

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