Should I buy bank owned properties vs. preforeclosures

I was looking at buying a bank owned property as my first investment vs. contacting preforeclosure owners. It seems to be a lot easier to deal with a bank and negotiate the foreclosed amount instead of introducing yourself to a stranger and asking for there home. I’ve been looking at a home that’s been on the foreclosed list for 80 days. Do you think the bank will negotiate? the profit margin after repairs and agent fees is roughly 50k.

Thanks everyone!


I would not limit your attention to only one tactic such as REOs, preforeclosures, etc. I am interested in the deal, not the tactic. However, between the two that you listed, REOs are eaiser and less risky for a 1st deal.


Having done both, REO’s are easier, but both have risks.

Depending on the state you live in, here in NY state, there is a law called the “Home Equity Theft Prevention Act” , which just went into effect on 2-1-07 that severely proscribes what an investor can do, and limits the profit by law, and allows the sale to be rescinded within a two year period under certain conditions, besides a 5 day period where the seller can cancel. This is after numerous “foreclosure rescue” complaints through the years. See:

NY is not the only state with statutes regulating “foreclosure rescue” investing.

In fact, law enforcement had taken it upon themselves in some cases. The New York Post reported this week the arrest of two attornies, who made up several back payments for an elderly lady, in return for her deeding them the house. The complaint was she received a little over 20K for her equity, whereas the actual equity was well over 200K.

I don’t know about you, with homes going for 400K to 500K in the NY area, what investor is going to muck around with a foreclosure rescue, where they give the poor lady her entire equity, and collect a few dollars in fees, to avoid arrest. Might as well broker it, or “bird dog” it.

As to REO’s, I was active in it in the last down market. Just make sure it’s sold “free and clear”.

I bought an REO free and clear at auction for a 210K bid, after researching public records and noticing the one right next to it was sold as an REO a few years before for 215K.

I spoke to the owner of that property some years later, and he said he wasn’t aware of the “free and clear” part, and wound up paying about 40K in leins, making the total purchase 215K+ 40K or 255k. The bank I bought mine from paid off the outstanding leins, which came out to 40K as well.

Most REO’s around here are sold thru brokers nowadays, and in the hot market that we’re in the last few years, were mainly sold at “market” prices.

A very small percentage of people that decide to invest in real estate ever buy even one property. That is because they have too many choices. If a person has 8 directions to take the first step he will probably not take any step. I suggest you only do ONE thing. That way you have taken a daunting task with many risks all different depending on what strategy you are trying to use and limited it to only one set of risks. That makes it easier to start and from then your business will start to take on a life of its own.

Purchasing REO properties for rental is a strategy that you can easily place “rules” around different aspects to help you make the right decisions and get you off the ground.

I guess it all depends on the state but aren’t bank owned properties (REOs) sold with a marketable title?

A mention was made to an auction for REO houses…were you talking about foreclosure auction where the liens go with the home?

My opinion…brokers are easier to deal with (plus you can have yours do the negotiation for free) and you usually know what you’re getting yourself into.

REO for life.
sorry for the lame ending.

Many REO homes around here were sold “as is”, and “with liens”. I guess the neighbor was a bit naive, but still, got it at a good price as far as I can see.

The bank that I got my REO thru an auction explained that they were keeping the loan they extended to me in their portfolio since the “as is”, and “not free and clear” part of the deal did not qualify the loan to be sold on the secondary market, and thus cannot be sold.

It turned out the REO sold to me was “free and clear”, but not all of them were, and this distinction was quite important.

He told me this after I asked whether the loan was “OO” or “NOO”, and he said it made no difference to the bank, and that it only mattered if the loan was being sold. The bank also paid all the closing costs, no points, and so forth, only 10% down, which made it a great deal.


I’m glad I live in OH then. The bank forecloses and usually ends up being the only bidder at auction. They then list the property with a realtor and whalah…it’s open season. You put a bid on the property and the bank decides if they accept the loss or hold and pay additional holding costs.

That sucks about the liens…move somewhere else.

OK, why don’t we put you in charge of the bank REO portfolio. Your boss gave you full authority to do whatever to unload the stuff.

So the bank got a property, with 150K mortgage, the market dropped, ARV of only 150K, needing 35K of repairs. Some investor wants to pay 75K for it. So you think about it, the bank would W/O 75K. but not bad, we get something back and avoid holding costs. Right??

Then, sneaky Sam, the crooked investor, hears about it.

Sneaky Sam calls you and says, “hey, why don’t I give you 10K in (non taxable) cash, and you have the bank sell it to me for 50K. I hear you have full authority to do that, right??”.

So what’s the big deal with the bank writing off 100K instead of 75K. It’s pocket change to the bank, isn’t it??

You say "but, but, I might have trouble justifying such a low price. Sneaky Sam says “no problem, I’ll go in with a crew, and really do a job on the place, and give you some pictures to show your boss, OK”??

Can you see someone not as ethical as you taking the 10K, and go along with sneaky Sam??

What’s my point??

My wife did “asset based loans” a while back, and crooks often working with crooked bankers doing such deals, taking payoffs, and writing down bank assets.

Seems many conservative banks feel it’s safter to hold on the non-performing assets, and have realtors do the selling if they cannot fully recover it’s loan value.

ok…? I guess i’m slow but I definitely missed your point on that one Frank. All I learned was that your wife worked with loans and came across some crooks.

My point was the market in my area allows banks to sell properties on their terms. I’m sure they have QC in place to reduce the amount of corporate theft but I really don’t care because I’m not in the banking business…

Could you explain your story so we can learn something in this post?

And please don’t take this as confrontational…

That’s OK, I got an uncle that’s kinda slow

There’s two viewpoint on buying bank REO’ cheaply. I thought using numbers would add clarity, but apparently not.

The REI view. The bank should take the best offer, to save on holding costs. You seem to have expressed some frustation in bank’s NOT realizing the holding costs.

The banker view. The banker cannot just take any offer based on the REI’s say so, because this process would lead to corruption. Holding costs is only a small part of the picture.

That’s the SIMPLE point I’m making.

I’ve was active in the REO market in the last downturn here, and this contradiction was a constant theme. I do not get upset when the banker refuses a good offer.

I thought I lend some input from the bankers’ side as both my wife and I worked in the field.

As to explaining the story, there’s nothing much. Some bankers, when not carefully supervised, take payoffs to do loans, sell the banks’s assets cheaply. etc.


Some banks rather let assets rot than allow their banker’s take bribes. If this is not clear, there’s nothing more I can add.

No, actually it is perfectly clear. Your comments agree with my thoughts on REO investments. I’ve got a deal pending $45k offer on a $90k ARV. Will they take it? Probably not but you never know how bad their book is and what kind of numbers they’re looking at during their monday morning meetings. It works for me! In OH, we’re going through a large defaulting period and lenders (some) are taking low offers.

I’m not frustrated with banks at all. They are in the business of making money…something i’m relatively good at myself and we all tend to make decisions with the bottom line in mind. Anyone reading this thread should not stray away from bank owner property from fear of an offer not being accepted.

So, going back to my comments above. I’m sorry you need to worry about buying REO property with liens attached. The lesson for all is to know how your area works and deal with caution. If you don’t know how things work you shouldn’t play.