When a bank forecloses, they take ownership of the property, usually in order to resell it in hopes of earning back some of their money. Foreclosures happen because the owner couldn't make the mortgage payments and had to forfeit the property. Bad for the home owner, good for you, since you can often get bank-owned foreclosure real estate for a song.
Often, what happens when someone can't make their payments is that the property reverts to the mortgage company, usually a bank, after a failed foreclosure auction. Most foreclosure auctions never receive even one bid, for one reason or another. This means that they end up going to the bank who really has very little use for properties and are usually very interested in getting rid of them as fast as possible. These foreclosed properties are referred to as REOs or Real Estate Owned.
If you aren't experienced in negotiating with banks, you'll want someone to be the go-between and make sure things run smoothly. This usually means hiring a buyer's agent who has experience in aiding bank-owned foreclosure sales. You are not usually the one responsible for paying the agent, take a look at the contract first and you'll likely find that the seller (the bank) is the one to pay any commissions.
Negotiating the price on bank-owned foreclosure real estate will generally depend on how long the property has been on the market. Banks are not likely to budge much from the asking price is a property has just been put on the market, but once it has been there for a time without offers, they will be more willing to reduce the price in order to sell quickly. It can actually be to your benefit to wait until a property has been on the market for a month or more so you can get a lower price.
Make sure you have a lawyer take a look at any contract that the bank draws up, since this is probably not going to be in your favor. If you don't understand the legalese, you will definitely want some help translating it. Remember, you don't have to sign anything until you are satisfied with the deal you are getting.
Another thing to watch out for is the escrow service that the bank uses. Banks often arrange a bulk rate with an escrow service, but you could very well end up paying the difference. Check the fees that you'll be charged before you pay. They could be steeper than you like and it's a good idea to know that ahead of time so you can check out your options.
Buying bank-owned foreclosure real estate can be a very good investment, but it does require some knowledge of the system. Until you have a sale or two under your belt, you will want to have a buyer's agent to make the entire process easier and snag free. Once you've actually completed a bank-owned property purchase, you may just find that you are addicted and want to continue to buy properties like this to flip!
