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Buying a Bank Owned Home
Bank Owned (also known as REO)
REO stands for Real Estate Owned. It is an acronym for what the bank refers to property which has been foreclosed on that they now own. The bank then sells the property as the legal owner.
Why Buy an REO/Bank Owned Property?
There are some advantages to buying and REO. It takes less time than a short sale and generally you can close in 30-45 days. You may sometimes get a better price on an REO property as the bank does not want to hold onto it any longer than needed. If this will be your primary residence, you often times are able to secure closing costs which means less money out of pocket for you.
What Do I need to initiate an REO Purchase?
Along with the purchase agreement you will need a pre-approval letter for your loan from your lender. If you are paying cash, you will need a Proof of Funds. Usually a bank statement showing enough cash in the account to cover the cost of buying the house will do. You will need a check for the earnest money deposit. Even if you want to wire the money, some banks require a copy of a check for the EMD. This has to be submitted into the bank along with the offer for approval. You may either deposit the check once your offer has been accepted or you may wire the funds when opening escrow to the title company.
Many banks will require you to also pre-qualify with them so they can be certain that you qualify to buy the house. You do not, however, need to use their lender. You have the right to use whomever you choose. You will also have to sign and get notarized an NRS 114. This is a document which acknowledges that you are buying the house “As Is” and the bank makes no representations regarding the house, nor will you hold the bank liable for any damage or repairs needed in the home. It is your sole responsibility to find out anything that is wrong with the house thru inspections. The bank will not disclose anything or be held responsible for any damages.
How is an REO different from a Normal Real Estate Transaction?
The Process of an REO
1. You submit your offer. It can take anywhere from 24 hours to a week to hear whether or not your offer has been accepted.
2. If there are multiple offers, all parties will be asked to submit their highest and best offer.
3. Once accepted, then the listing agent will send over a lot of disclosures and addendums on behalf of the bank for the buyer to sign. This paperwork can seem a bit overwhelming and full legalese. If you are not comfortable with the paperwork, you may seek the advice of an attorney.
4. After the bank signs off on the offer and it is fully executed, the due diligence period begins where you may perform your inspections on the home and the appraisal.
5. If the inspections are to your satisfaction and you wish to proceed with the transaction, you may begin the closing process where your lender will get their loan documents to title for you to sign. Additional closing documents will be signed by both buyer and seller.
6. If the appraisal does not come in at the agreed upon purchase price, you must submit the appraisal right away to the listing agent so they can let the bank approve the appraised purchase price. This can take a little time, anywhere from a few days to a couple of weeks. Once agreed upon, then you can move to closing.
7. Close of escrow is considered to be after both buyer and seller have signed all closing documents, the loan has been funded and the property has been recorded into the new buyer’s name. At that point you are the legal owner of the property.