When most people think of investing in foreclosure properties, this is what they have in mind. As we discussed in Part I, most homes sold by the public trustee at foreclosure auction are bought by the lender holding the mortgage. Because banks are in the business of lending money, not owning real estate, they want to sell them as fast as possible and unload their "REO" (Real Estate Owned) properties. So, they find a broker who will list them in the MLS.
This is where, in my opinion, the REAL bargains are to be had because the banks are so motivated to sell. Consider a cute 1920s bungalow near 6th and Hawthorne in North Boulder that sold last September for $400,000. It was small, less than 700 square feet, but had a detached studio in the backyard. Plus, the lot was 6,738 square feet -- most likely big enough to build on. The same property sold in 2004 for $579,000, and it's been a long time since homes on build-able lots west of Broadway sold for less than $400,000.
Bank-owned homes are not limited to the lower end of the market here. A unique, architect-designed home on Linden Avenue sold last November for $953,000. It had been appraised at $1.75 million just a few months prior.
However, (you knew that was coming, right?) there are plenty of bank-owned properties that fit the stereotype of the foreclosure -- overgrown yard, holes in the roof, nasty carpets, missing appliances, or "needs TLC," to use a common real estate euphemism. They will be vacant and often "winterized," with the water and heat turned off. The ones that are in good condition and priced well generally sell fast, often with multiple offers at once. So, you need to be ready to make an offer quickly, but also do your due diligence and careful inspections.
Bank-owned or REO transactions are similar to traditional real estate sales, except that a representative from the lender, not a homeowner, will be on the seller's side. They don't take as long to close as short sales, and sometimes the lender/seller will offer the buyer a new loan on the home at an attractive interest rate. There's not much of a Seller's Disclosure in this case because the bank has no knowledge of the condition of the home (they didn't live there, after all). Also, they generally deliver a different type of deed -- a "special," rather than "general," warranty deed, which offers fewer guarantees to the buyer, necessitating a good title insurance policy.
You never know when you might find a diamond in the rough, disguised as a bank-owned property. Peel back the nasty carpets and there might be oak floors underneath. If the home has "good bones" and you have the wherewithal and financing to fix it up, it can be a great investment, or a great home. There are seven bank-owned homes currently on the market in Boulder, ranging in price from $429,000 to $1.6 million, and 20 in Longmont between $145,000 and $629,000. Let me know if you'd like more information or if you'd like me to create a custom search for you, so you can start tracking bank-owned homes. Just call me at 303-449-2959.
During a recession charities get hit twice -- fewer donations and increased needs for things like food banks, shelter and counseling. So, I've committed to donate 15% of my net commissions to charities. And as my client, you can choose your favorite charity, as long as it has 501C3 status.
