A Word About "Foreclosures"

I have gotten many calls lately from buyers wanting to purchase foreclosures. I also recently had a call on one of my listings from a woman who loved the house, loved the price, and when I told her the house was not a foreclosed property, she hung up.  It's official- the most value oriented flock of buyers in recent history are clamoring for something that may not even be worth it at all- the elusive foreclosed property. 

I would like to clarify that buying a "foreclosure" in the literal sense would actually be buying a house that is in foreclosure- a short sale.  Short sales have their own hassles which I will not go into here. So buying a foreclosure is not what buyers want right now, it is buying an REO, which translates to Real Estate Owned.  REO's are also know as bank owned property.  Bank owned properties are often attractive because they can be closed fairly quickly and are offered just at or below market. I do think they provide a good opportunity in some instances, but I think buyers are overlooking other deals just for the sake of buying an REO. Most REO properties need some work and are priced very fairly. Many bank owned properties will receive multiple offers which create a bidding frenzy and play to the banks advantage. I have recently closed on 4 of these properties and I am going to offer a few helpful hints on the process:

1.) Don't Just Sign the Bank Generated Addendum - The BGA is perhaps the most unfair, biased and difficult document out there. According to one attorney friend that I have, no one in their right mind would sign unless they thought they were getting the deal of the decade. Thoroughly review what you are signing. I would recommend retaining legal counsel to help evaluate the document. Whatever you do, just realize that once you sign that document, the Bank is driving the transaction. 

2.) Be Realistic About Timeframes - The Bank will be totally unfair with how long they give you for inspections and they will also charge you a per diem for everyday past closing they have to wait for you to close.  The goal is to close transactions as quickly as possible, but in the midst of this, the bank's closing agents have become backlogged.  The bank can delay things as long as they want without penalty. So, just keep in mind that you could be waiting for a long time. 

3.) Do Your Own Title Search - The Bank will almost always want to pay for the title work and the title insurance policy.  Let them do this to save a little money and keep the process simple. What you should not do is trust their title search to be comprehensive. I have seen some abhorrent mistakes on the title work of these closing mills. Hire someone you trust in the business to help look at the title on the property and also take the time to make sure that the foreclosure was served properly. The original owned of the property could have some recourse on a botched foreclosure. 

Most importantly, make sure you are working with a strong buyer's agent who can align you with the right professionals to further assist and also help work with the bank's agent. Foreclosures can be a good source of opportunity in this market, but not the only source. Proceed with extreme caution and diligence as you consider purchasing a foreclosure.