Bank Owned Property are REO Properties Assets that are Inventory on the Banks Books.
Bank owned property consists of real estate acquired through foreclosure. When no one bids on foreclosed property through auction, the property deed is transferred to the bank. At this point, property becomes real estate owned (REO) by the bank. Banks generally sell REO property under market value because they are distressed properties requiring renovations or repairs.
Purchasing bank owned property can be quite profitable and offer significant savings over foreclosure or short sale real estate. It's not uncommon for bank owned property to originally be secured by two loans. When homeowners take out a second mortgage on their home the loan can consist of 20-percent or more of original market value.
During foreclosure, both lenders must file foreclosure proceedings. If the second lender does not initiate foreclosure, the balance due on the mortgage note is written-off. This could result in substantially less being owed on the house and enable the bank to sell it at significant savings to the buyer.
Banks are in the business of making money. With the recent influx of foreclosures, many banks are holding hundreds of bank owned properties. Since most REO properties require significant repairs to obtain market value sale prices, banks are willing to price distressed properties under market value in order to reduce their inventory.
In order to purchase bank owned property, individuals and investors must work with the lender's loss mitigation department. Banks hire professional negotiators in an attempt to obtain the highest price for bank owned real estate. It's not uncommon to spend considerable time in negotiation and submission of counter-offers.
Negotiating for bank owned property is not for the faint of heart. Experts recommend placing bids on REO houses that have been on the market at least 30 days. Banks are rarely willing to negotiate on new listings; however, if a property has been sitting vacant for six months or longer, they are generally more willing to accept a lesser amount.
Bank owned property is typically sold as-is. It's imperative to conduct due diligence to determine if the property is worth the investment. If an REO property is purchased at 10-percent under market value, but requires 20-percent of the selling price in repairs, it's not a smart investment.
Scouting out great deals on bank owned property takes time, but can yield tremendous savings. Individuals who possess patience and willing to spend time researching bank own property can potentially purchase real estate at up to 30-percent under current market value.
A little known secret to locating deeply discounted bank owned property is to seek out private investors who specialize in this real estate niche. Investors who purchase bank owned property portfolios are able to obtain distressed properties for pennies on the dollar and pass their savings along to buyers.