How to Find Bank Owned Properties

While foreclosures have (finally) fallen to a 20-year low, thanks to a stronger labor market and better interest rates, the U.S. housing market has certainly had its share of rough spots over the past decade. At the height of the housing crisis in 2008, foreclosures spiked a staggering 81% and more than 860,000 families lost their homes. It’s taken a long time to recover from that. Truth be told, if you’re wondering how to find bank owned properties, there are plenty on the market today.

Foreclosure is always a tragic situation for the family who called the property home. But it’s also true that bank-owned properties can be a great value if you know how to look for one. But first, you’ve got to know how to find bank owned homes. And once you do, it helps to understand the process, which differs slightly from a traditional real estate transaction.

What are bank-owned properties?

A bank-owned property, often referred to as real estate owned, or REO, is a property owned by the bank that originally financed the mortgage. During the foreclosure process, the lender will attempt to sell the home at auction; if it doesn’t sell, ownership gets transferred back to the bank.

“Oftentimes, banks will have a large number of these properties on their balance sheet. These nonperforming assets become entries on a spreadsheet that bank managers now must decide to hold or find a way to sell,” said Justin Smith, a property buyer with Hollis Hill Properties, LLC.

Advantages of bank-owned properties

If you’re in the market for a new home, you may be missing out on a budget-friendly gem of a home if you’re only searching the traditional multiple listing service, or MLS. While the process of buying a bank-owned property might be a bit different (more on that later), there are lots of advantages to purchasing a home that was once the site of another owner’s financial misfortune. And it’s not just price, though that’s certainly at the top of the list. Here are some of the biggest benefits of purchasing bank owned foreclosures:

Discounted price: Because the bank that owns the property is keen to get it off its balance sheet, REOs are often priced to sell.

Clear title: According to Auction.com, “Banks and other financing companies holding REO assets typically work on clearing the title before offering the property for sale.”

Quick inspection process: Similarly, the bank will oversee removal of any debris or leftover items in the home that could cause a snag in the inspection process. As a result, you can expect this part of the process of purchasing bank owned properties to go smoothly.

Less haggling on pricing and other contingencies: “Because these properties are bank owned, the terms and conditions of the sale, such as price and ability to negotiate on the condition of the property, will be much less flexible,” Smith said. That means if you find a price on a REO that you’re happy with, the process should be pretty straightforward. However, if it’s a “stretch” price for you, it likely won’t decrease to meet your budget, so it may be best to keep looking.

Drawbacks of bank owned properties

So you’ve found a house that works for you at a great price point. It’s vacant, and it even appears to be move-in ready. What’s more, there aren’t 10 other buyers clamoring to buy the property, pushing up the price. What’s the catch? It’s a bank owned foreclosure. Despite the advantages of buying bank owned properties listed above, you’re bound to hit at least a few snags if you choose to go this route. Let’s look at a few:

The property comes in ‘as is’ condition. The bank won’t offer money toward new flooring or offer to replace broken windows before you buy the home. That means you could be paying for something that could require far more work than you had planned in order to make it livable or profitable. It’s imperative you go over the property with a fine-toothed comb and get a sense for any repairs you’ll need to do. The inspection process will definitely help with this.

Banks often prefer cash-only transactions. If the bank does allow financing, you must have this in order first and be prepared to put down earnest money in order for the bank to take your offer seriously.

It can be difficult to secure financing. “Typically, financing auction properties will be through nontraditional methods, such as a hard money lender or private lender,” Smith said. “The cost of financing is higher (higher APR and points) than traditional loans because of the higher amount of inherent risk when purchasing properties at auction.”

It can take a long time to close. Any negotiations on price, condition and other factors will have to be run “up the chain,” which can add a lot of time to the transaction. According to Smith, “Finding these properties and coming to an agreement on contract terms can take much longer than a traditional real estate transaction, but once an agreement has been reached, closing can usually take place within 30 to 60 days.”

How to find bank owned homes

If you’re willing to put in the work, you should be able to find bank owned properties in your area. And there are a number of ways to do so, both on-market and off-market. Below are some of the most popular methods for how to find bank owned homes. And if it’s a certain property you’ve got your eye on, a property search tool may help you learn more about it, including the ownership history, tax and lien information, and specific property details.

Word of mouth:. Especially if you live in a small town, word travels fast when a family forecloses on their home. It can definitely be a sticky situation, especially if you know the family personally, but the fact remains that word of mouth is a good way to learn of bank owned properties.

Bank websites: Smith touts this method as one of the best methods if you’re wondering how to find bank owned properties. “You can find these listings on bank owned websites dedicated to REO properties, like reo.wellsfargo.com, or by reaching out directly to banks local to your area and finding the right person to speak with,” he said.

A Google search: Another of Smith’s favorite ways to find foreclosure properties? A simple Google search. “Try a Google search combined with your city, like, ‘REO properties for sale Atlanta,’ and a number of helpful links to REO listings should pop up.”

Auction.com. This robust site features more than 30,000 bank-owned and foreclosure properties in the U.S. Searchable by state, county or ZIP code, listings include information like auction date and time, estimated resale value, and basic property details.

How to buy a bank owned foreclosure

By now, you already know that the process of buying a bank owned foreclosure differs slightly from a traditional real estate transaction. But what are the steps you’ll need to follow in order to do so? There are essentially two avenues: public auctions and bank-owned sales or auctions.

How to buy a foreclosed home at auction

1. Find out which properties will be available at the auction.
2. Research whether the property is right for you. Investigate the neighborhood, speak with neighbors and take a look at the condition of the home.
3. If you won’t be paying cash for the home, you’ll have to secure your own financing. It won’t be an option at the auction.
4. Attend the auction and bid on the home.

How to buy a bank-owned property from a bank outside of the auction process

1. Find an REO property using any one of the methods listed above.
2. Find a lender. You can choose any lender you want, since you likely won’t be able to secure financing through the bank that owns the home.
3. Find a real estate buyer’s agent who’s familiar with REO homes. They’ll be able to give you key insight into the property you’re thinking about buying, and help you secure the best deal.
4. Get an appraisal. This will help you determine whether the asking price is fair and decide how much to offer.
5. Make an offer. Don’t worry if it takes the bank a week or so to address your offer. Remember, this isn’t a traditional real estate transaction.

Housing markets are fickle things

Once you have a good grasp on how to find bank owned homes, you can keep your eye on REO listings in your area in the hopes of finding a foreclosure property at a great price. And if it happens that the right home for you is an REO, go ahead and secure financing so you can successfully navigate the process of bidding on the home, whether that’s through the bank that owns it or a public auction.