Buying REO Foreclosure Properties From a Mortgage Company — Figuring Out the Language

One of the most effective methods of helping homeowners save their homes from foreclosure is becoming a local real estate investor. Starting with just one or two properties previously owned by friends, family members, coworkers, or acquaintances, new investors can help encourage communities to work together to help alleviate the damaging results of high foreclosure rates.

The process of buying a bank-owned property or one that had been purchased by a corporation at a county auction can be a bit different from a regular, arms-length purchase. Because foreclosed properties are usually not rehabilitated or maintained by their new corporate owners, potential buyers will have to deal with more complicated disclosures and contract addenda that are designed to protect the bank from future litigation.

Even in the property listings themselves, the language can be quite confusing to the average home buyer. The following are a few of the potential clauses that may tend to throw off the new investor. Most can be easily overcome, though, as they are mainly designed to protect the owner of the property from wasting time or having to deal with the damage done to a foreclosed home by previous owners of through general disrepair.

Corporate owned
\r This means that the bank most likely owns the home now that it has been foreclosed, or another investment corporation bought it at the auction. It is not owned by a private individual, in any case. Even if the original owners are still occupying the house, they will more than likely be evicted soon enough, as their ownership interest in the house has been extinguished. The bank that foreclosed on the house or a third-party corporation bought it at the county sheriff sale and is now listing it for sale on the open market.

Sold as-is
\r This is possibly the most self-explanatory clause, but potential buyers should be aware of all the implications of such a simple-sounding phrase. The owner is not going to do any repairs to the house before it is sold, so the buyers better do have their own inspection conducted by a competent inspector. It is safe to assume that, in any foreclosure house, some things are probably wrong with it, even if it has not been vandalized or stripped. The owner is just selling whatever is still sitting on that lot, whether it is a house in great condition or falling apart with damage on the inside and numerous necessary repairs.

Disclosures-addendums required
\r This clause means that the new buyers will have to sign off that they understand they will be buying a house that may be damaged and they agree to hold the owner corporation harmless for anything wrong with the house. Besides the normal sales contract, the addenda will have these disclosures that the house is a corporate-owned foreclosure property that has not been maintained since it was foreclosed and may be in a depreciated condition. They may as well be called \"buyer really beware\" disclosures, as this is the message they intend to convey.

Due to the condition, conventional rehab loans or cash only
\r By using this clause in a listing, the owner indicates it does not expect any buyer to qualify for a regular home loan to make the purchase. This is because many banks will not lend on a house in poor condition with city code violations and lots of damage to the structure. This does not preclude buying the house, of course, as individuals can get a rehab loan for such purchases, which the owner will accept. Otherwise, they have to pay cash for the house. \"Conventional\" in this context generally means from a regular bank or mortgage company -- no subprime loans, hard money loans, owner-financing, creative financing, or anything other than just a loan from a bank.

Prequal and/or proof of funds must accompany offers
\r When the potential buyers submit their offer to purchase the property, they must include a prequalification letter from a mortgage company stating how much money they are approved to borrow. The owner does not want people submitting offers for a house when they are not even prequalified for a loan to complete the purchase. It is a tremendous waste of time, obviously, to deal with individuals who will not qualify for a mortgage. In the case of a cash offer, the buyers will have to submit proof of funds, like a bank statement showing they have the cash and are able to pay the purchase price.

These are just a few of the more commonly-used clauses when banks list foreclosed properties on the market. Most of them are designed to protect their own interests and avoid any lawsuits in the future based on the condition of the house, as well as to prevent from wasting time considering bogus offers. Although most real estate investors may be familiar with such clauses, new investors with excess financial resources may enter the foreclosure market in order to help their communities avoid some of the worst consequences of neighborhoods turning into ghost towns. This can help create safer cities, as well as raise the general level of wealth in the area.

The ForeclosureFish website has been created to provide homeowners in danger of losing their houses with relevant foreclosure advice and information. The site describes various methods that may be used to save a home, such as bankruptcy to stop foreclosure, short sales, loss mitigation, foreclosure loans, and more. Visit the site to read more articles about how foreclosure works and how the process may be avoided before it is too late: http://www.foreclosurefish.com/

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