Minnesota Bank Owned Properties                       

Buying bank owned properties in Minnesota
There is a lot of interest in buying bank owned 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 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. 

Is it a bargain?
It’s commonly assumed that any bank owned properties must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a bank owned property 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 bank owned property, 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 bank owned properties that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them.  Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you’ll want your agent to find out as much as they can about what the bank knows about the condition of the property and what their process is for receiving offers.  Since banks almost always sell bank owned 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 counter offer.  Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  Realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take days or even weeks. Be VERY aware of the type of insurance policy the you are receiving from the bank's title company. a.) Does it include GAP coverage? Some of these title company's are 3-9 months or even longer from recording their documents. That's a ton of risk if GAP coverage is not included in the policy. b.) Does the title company have any exclusions in there policy? Do they cover HOA liens, delinquent water bills and assessments or are they excluded on the policy?  The AS-IS addendums might state that after the closing the buyer is responsible for any fees or dues including real estate taxes, HOA fees, water bills and assessments that are not taken care of at closing.  Be sure the title company handling the transaction is working in the best interests of you, not just the bank.