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Feb 20

Buying an REO or Foreclosure

Most of the homebuyers I help pre-qualify for financing have no intention of buying a foreclosure (a home that has been taken back by a lender). Only a very small percentage of the people I speak with are specifically looking for a distressed property. However, it would be difficult to look at very many homes today without stumbling upon a bank owned property.
Foreclosures and REO’s are two interchangeable names for properties that have been taken back by a lender.  There is nothing wrong with buying a home from a lender as long as you follow a few simple rules.

Work extremely close with your Realtor. Always a good rule to follow but especially true when buying a distressed property. Most buyers AND sellers are not close enough to their Realtor.  Get to know your agent on a deeper level but more importantly let them know you.  The more your Realtor knows about you the better their service will be.

Home Inspection. A very big must when buying an REO.  Some buyers think they are getting a bargain by purchasing a bank owned property, that may or may not be true.  Most foreclosures happen over a very long period of time, months or sometimes a couple of years.  Homeowners usually have cash flow problems long before losing their home.  During that time they often neglect to make necessary repairs to the home.  Many lenders will not make repairs to a home they have taken back, the idea of throwing good money after bad.  So make sure you get a through home inspection.

Selection of Title Insurance Provider. This one is hard to grasp even for me because the industry makes it complicated.  Most of the purchase contracts I have seen on a foreclosure designate a specific law firm or title insurance company that the seller wants to use for closing the deal.  This clause is inserted by the company that will benefit from handling the closing, the law firm or title company.  They are like a pack of rabid dogs and do their best to scare the purchaser into using the closing firm “designated” by the seller. In almost every case they were involved in the foreclosure process. They are exactly the last entity the buyer should use!  If an attorney made a mistake taking a property from the previous owner are they likely to discover the mistake when transferring the property to the new buyer?  Not likely.
Besides, what buyer in their right mind would think using the seller’s attorney is a good idea?  I ran into this last week.  The seller’s attorney had a paralegal contact the buyer’s Realtor and tell them it would cost the buyer as much as $800 more if they used another closing attorney, it was a lie.  The seller’s attorney knew I had already ordered a tittle report from someone I trust. In fact they had already delivered the fully executed deed to the closing attorney I preferred.  Pretending to work with us she went around our backs and directly contacted the Realtor.  Would you want someone that sneaky protecting your most valuable asset, your home?

I called her boss to complain and he told me he instructed her to act like that, said it was how they market their services.  I let him know how despicable his methods are.  He told me he wasn’t interested in my opinion and will do it again if given the opportunity. The lender is required to get title insurance; it is optional for the buyer. This is not the kind of person I want issuing my title insurance.

REO’s can be a good deal for a buyer but not always.  Just do your homework and protect yourself like you would while dealing with any other seller.

Buying a property in Kentucky and want to be pre-approved for a mortgage?  Visit my online application site or print and use this simple form to get started.  If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

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