Apparently, the robo-signing scandal hasn’t scared buyers away from bank-owned foreclosure homes. According to a new survey by the Home Buying Institute, most home buyers are comfortable with the idea of buying a bank-owned property.
The 2011 Foreclosure Survey was presented to more than 15,000 readers on the Home Buying Institute website, from January 1 – 31. Out of the readers who responded, 83% said they would be comfortable buying a bank-owned foreclosure home in 2011.
Most people also said they expect foreclosure inventories to rise in 2011.
“This survey actually went the opposite direction from what I expected,” said Brandon Cornett, publisher of the Home Buying Institute. “I thought a higher percentage of people would be reluctant to buy a bank-owned home, because of all the ‘robo-signing’ stuff in the news lately. It turns out that most people are comfortable with the idea [of buying a bank-owned property].”
Definition of a Bank-Owned Home
About 10% of respondents did not know what a bank-owned home was. Here’s a quick definition for those who are not familiar with the term. A bank-owned property is one that has been foreclosed upon by the lender. When a homeowner stops making the mortgage payments on a home, the bank that owns the loan will eventually foreclose. This is the legal process through which the bank repossesses or takes back the property. These repossessed homes are also known as REO properties, which is short for real estate-owned by a bank.
Some Buyers Had Concerns
Nearly 7% of respondents said they would not be comfortable buying a bank-owned home in 2011. The three most common reasons given were:
- Concerned about the condition of the property (most common reason among the “no” respondents).
- Banks take too long when dealing with buyers. *
- Home prices are still falling in my area.
* Some of these concerns are valid. But the second item on the list (banks taking too long) is less of a concern today. In the early days of the housing crisis, banks were overwhelmed by the number of foreclosures. They did not have the staff to handle foreclosure processing on the front end (hence the robo-signing fiasco), or on the resale side. So when buyers submitted an offer to purchase a bank-owned home, they would often wait weeks or months before getting a response. But response times have improved considerably since then. Today, most banks have staff dedicated to the resale of bank-owned homes. The larger banks have entire departments managing their REO inventories.
The “Safest” Way to Buy a Foreclosure?
Distressed properties (where the homeowners are falling behind on payments) can be purchased in several ways. You can buy a home that’s in a pre-foreclosure status, before the bank actually forecloses. The short sale is a good example of this. You can also purchase a foreclosure home at a real estate auction. When these properties go back onto the market, they are referred to as bank-owned homes or REO — short for real estate-owned.
Many real estate experts feel that bank-owned homes are the safest bet for buyers, because the title has been cleared and the homeowner is out of the equation.
“From the consumer’s perspective, I don’t think they have a lot to fear as long as they’re able to purchase title insurance on an REO property,” says Ivan Choi, a sales executive for New Vista Asset Management in San Diego.
Still, buying a bank-owned home does have certain risks. For one thing, buyers need to find out what kinds of liens (if any) are attached to the property. According to the foreclosure-tracking service RealtyTrac: “You may have to pay off the liens on the foreclosed property you are buying — even though you’re not the one who didn’t pay the property taxes.”
Tip for Buying a Bank-Owned Home
We recently published a three-part tutorial on buying bank-owned homes. First-time buyers who are considering these properties should read the tutorial. It’s a great place to continue your research. Among other things, the article explains the importance of using a foreclosure-tracking service and hiring an agent who is familiar with the process.
If you are interested in buying a bank-owned home, we strongly recommend working with an experienced agent. When you make an offer to buy an REO property, your offer will go straight to the bank. There is no homeowner to deal with in this scenario. So the offer-submission process is slightly different from a “regular” real estate transaction. A real estate agent who is familiar with the process can help you prepare your offer, among other things.
Why you should consider buying a foreclosure