In this real estate market, there are a lot of foreclosed homes owned by banks, known as Real Estate Owned or REO properties. If a home is not purchased at the foreclosure auction, its ownership reverts to the bank, and the bank will then turn around and sell the home on the open market. Many buyers would like to buy these properties, as they often are significantly discounted compared to fair-market sales. Can you buy a REO property before it is re-listed for sale on the MLS? In most cases, it is unlikely.
How can I find REO properties?
Tracking ownership of REO properties can be a challenge. Leading up to the foreclosure, you can try to determine which bank owns the mortgage on the home. The original mortgage holder is a matter of public record in many states, but keep in mind that ownership of the mortgage often changes hands during the term of the loan and the original lender may have been replaced by a different bank.
A more accurate way to track the lender on these properties is to find the foreclosure trustees who are active in your area. In the Seattle area, most of the foreclosures are processed through Northwest Trustee and Quality Loan Service Corporation. Both have online lookup capabilities to track foreclosure activity which will tell you when the foreclosure auction is taking place and what the auction price is.
Once a foreclosure has taken place, and if the property did not sell at the foreclosure auction, then the property will transfer ownership via a Trustee Deed. (This is in Washington State and other states have different procedures.) The trustee deeds are recorded at the county within about a week or so, and you will be able to tell which bank has taken ownership of the property.
What happens once a bank owns a home?
Once a bank takes ownership of a home, it becomes part of their REO inventory. In areas with relatively modest REO inventory, these homes are often listed immediately for sale, which is the case in the city of Seattle. In other areas with very high inventory, banks will hold back REO inventory so that they do not flood the market and further depress prices.
Some banks keep an online database of their REO properties for consumers to view. Here a few websites for large banks:
Vacant properties can be listed immediately, sometimes within a couple of weeks. However, not all foreclosed homes become available immediately. Often there are evictions that need to take place or it is deemed unmarketable until issues with the home are fixed. Other states may have redemption periods for the previous owners which need to expire before a home can be listed for sale.
Can I buy a REO property before it is listed on the MLS?
Many buyers track specific properties and would love to short-circuit the process and bid on homes before they are listed for sale to the general public. In most cases, this is not possible. First, banks are not in the business of wanting to own real estate, and they do not have local staff to manage and market properties. Because of this, they hire asset management companies and real estate agents to help them with these tasks. When a property is managed by an asset management company, they will assign it to a real estate agent who does the in-person work necessary to prepare and list properties for sale. Banks do not have the staff or desire to negotiate the sale of their properties directly and rely on brokers in the area to help them with this.
Banks are obligated to look after the best interests of their shareholders, and in the case of mortgages, to look after the best interests of the investors in those mortgages. The best way to secure top dollar for a real estate asset is to expose it to the broadest market possible. This means listing it on the MLS and advertising the property in a similar manner to a regular seller. You can see that they are not incented to talk to an individual buyer about an offer before they have had a chance to expose it to the entire market of buyers.
Can you try to contact a bank before they list a home on the MLS? Sure, but in most cases they will either tell you it is unavailable, or they will give you the contact information for the real estate agent who has been assigned to list the property. In the Seattle area, the best source of available REO homes for sale is the MLS.