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Ahh, so you saw the ad that flashed, “REO Properties For Sale” and you’re thinking you are going to do just like the guy in the infomercial said and go buy up a few, clean them up a little bit, and then resell them and make a killing. And why not? REO properties can be had for a song, right? Who in their right mind could pass up a bargain like that? You’d think that everybody would be out there snapping up REO properties. Well, before you begin hitting the “REO Properties For Sale” ads, you better read the rest of this article. The guy in the infomercial doesn’t tell you the whole story.

You see, he doesn’t tell you the difference between foreclosure properties and REO properties. When a foreclosure property first goes up for auction, it’s still owned by the mortgage company and they want to get rid of it as quick as possible. So that much is right. However, if there were enough equity in the property to begin with, the owner in all probability would have sold the house himself and paid it off. Foreclosure sales begin with a minimum bid that includes the balance of the loan, the accrued interest, attorney fees and other related costs of the foreclosure so that minimum opening bid can oftentimes be more than the property is currently worth. Which is the reason that most homes don’t even receive a bid at a foreclosure sale.

The property then reverts back to the bank when it is not sold at the foreclosure sale and that’s when it becomes an REO property – Real Estate Owned (by the bank). Now that the bank officially owns the property it becomes one of their assets and banks now have entire departments dedicated to handling these properties. Because they’re now an asset, banks are not in such a rush to unload them at a cheap price just to get rid of the responsibility.

The bank now goes in and makes minor repairs, takes care of any accrued association fees, negotiates tax liens with the IRS and in essence now becomes the owner of an asset, just like when you buy a home. So it’s to the bank’s benefit now to sell that home at an even higher price than was asked at the foreclosure sale so they will recoup their investment and make a profit.

Where most buyers make their fatal mistake is in assuming that because the property was a foreclosure property they are getting a better deal no matter what the price is and they do not realize that most times the property is worth far less than the asking price. The guy in the infomercial is pulling your leg and making a lot of cash telling you why you ought to purchase REO properties but you need to spend a little time learning HOW you ought to purchase them. There are some extremely sensible deals out there. But before you begin hitting those “REO Properties For Sale” ads, you need to do a little research.

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When you consider that in some areas the number of homeowners underwater on their mortgages is upwards of 45 to 50 percent it’s no surprise the number of bank foreclosures is also on the rise.Many homeowners have such an incredible amount of negative equity in their homes that they’d never be in a position to recover and they’re simply abandoning their homes, and their mortgages, and letting them go back to the bank.

For these homeowners it’s a no win situation. They can either continue making their monthly mortgage payments while they watch the value of their home sink lower and lower or the can ruin their credit forever and just leave town. And it’s typically the second choice that they go for since most of those homeowners have also seen a reduction in income due to the loss of a job or dwindling investments.This might seem like the perfect chance for you to pick up some cheap investment property however are bank foreclosures really the wonderful opportunity that they seem to be?

If you’re considering buying back foreclosures you need to keep in mind the reason why the homeowners turned that property back over to the bank in the first place. Because there wasn’t enough equity in the property to make it worth it to them to attempt to sell it themselves. Negative equity happens when you continue to owe more on the property than it’s currently worth which means you’d need to ask far more than market value if you wanted to sell it to get out from beneath the debt.

When a bank forecloses on a property, if it doesn’t sell at a foreclosure sale, it becomes the property of the bank. At that point, the bank takes over maintenance of the home, covers tax liens and association fees and considers that property to be one of it’s assets. Most people think that once a bank takes possession they’d be happy to let it go to the first one that is willing to buy it. But the bank has money invested in that property, too. There’s the original loan balance, the back interest, and all the fees that have been generated since they took ownership. And banks are wise investors, too. The bank does not want to sell that property at a loss for the simple reason that they’re in the business of making money, not losing it, and they get the same advantages of owning property that you or I do.

While it’s true that you can often pick up bank foreclosures for little or no money down, you mustn’t automatically assume that simply because the property is owned by the bank that you’re getting a great deal on the price. It still pays to do your research and find out the market value of the home versus the original selling price, together with the asking prices and market values of comparable homes in the area. Then you will be able to make an informed decision as to whether or not bank foreclosures are really a wise investment.

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It’s a good idea to find out how the bank came to own the property and why they are trying to sell it before you begin looking into buying bank owned properties. Most folks assume that bank owned property can be had for a song because, after all, what does a bank want with a house? Surely they need to get rid of it as quickly as possible so they don’t have to worry about maintaining it. Why, they’re going to probably pay me just to take it off their hands! Let me assure you. This is definitely not the case. And if you’re not careful when you’re buying bank owned houses, you may end up paying much more than the property is actually worth.

When a property goes into foreclosure it’s first placed up for auction at a foreclosure sale. And the same misconception applies here as well. Folks assume that if a property is listed at a foreclosure sale it must be a really great deal because all you have to do is finish paying off the mortgage. However, if there were enough equity in the house the buyer in all probability would have made arrangements to sell it himself and pay off the loan. At the foreclosure sale the minimum opening bid includes the balance of the loan, the accrued loan interest, and attorney fees connected to the foreclosure proceedings. And when you combine all of that the minimum opening bid can typically be much more that the property is currently worth. That is the reason the owner didn’t sell it in the first place and that’s why most foreclosure properties do not even get an opening bid.

The property then becomes one of those bank owned houses you’re thinking about buying if it does not sell at the foreclosure sale. Again, most people think that the bank does not want to be involved in property management and they’ll be willing to let it go for a song. However, with the number of foreclosures rising, banks are setting up entire departments to permit them to handle these properties as assets instead of debits.

The bank makes minor repairs, takes care of any tax liens and association fees, and then adds all of this on to the other money owed – the balance of the loan, the back interest, etc. Now the price on the bank owned houses is even more than it would have been if you’d purchased it at the foreclosure sale. And if the property wasn’t worth the investment at the foreclosure sale it certainly isn’t worth the price you will have to pay if you buy it from the bank.

Obviously, there are some extremely good deals available on bank owned houses. But you need to first do the necessary research to find out how much the house is worth. It’s possible to get bank owned houses at a very low price, however it’s still usually a lot more than just a song.

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