- Find the owner. This can be tricky. Most REO properties are listed with a real estate broker and it may be difficult to find out who the actual trustee or decision-maker is. Many servicers assign properties to asset managers located all over the country. Check the Find Property page in this section for links to REO property listings for the major servicers.
- Inspect the property. REO properties are usually sold as is, so a thorough inspection is necessary to estimate the rehabilitation costs. Software programs like Housing Developer Pro allow you to print inspection forms and work from a set of standard rehab specifications to help you accurately estimate rehab costs. Be on the lookout for issues common to REO properties; vacant homes may have water damage and siding or copper fixtures may have been stripped. Document your findings with a digital camera or video camera; even a cell phone camera will do.
- Do a title search. Search the public records for outstanding liens. A title company can run a full, insured title search for a fee. Look for second liens, unpaid taxes, or unpaid contractors (called a mechanic's lien). These liens remain intact until they are repaid, by the former or current owner. Sellers should clear the title before the sale, but never assume this is the case. Title issues can hold up the closing process for many months.
- Determine a fair price. Be prepared by completing your own market analysis in advance of identifying properties to purchase. Have your end strategy in mind before you make a bid, keeping in mind the rehab and holding costs (taxes, insurance, maintenance). Try to find comparables that were purchased as REO, rather than comparing to conventional sales. There are appraisers who specialize in distressed asset valuation; seek one out in your area.
- Negotiate. Nonprofit organizations should be prepared to aggressively negotiate the purchase price of an REO property. Servicers have a fiduciary responsibility to return maximum value to their investors. However, most own properties all over the country and don't have the knowledge of the local market that a nonprofit community development organization has. Back up your offer price with repair estimates and photos or video of both the interior and exterior of the property (digital photos can be sent via email to speed up the process). Be prepared to demonstrate that your offer represents maximum value given market conditions and average days on the market for your area.
There are multiple resources available to help nonprofit organizations find out the legal status of particular properties.
- Public records of property title and history are held in state, county or city offices (e.g., County Clerk's office). A free resource for accessing state and county public records is BRB Publications, Inc.
- Records of default are also helped publicly and contain notification if a property has gone into foreclosure.
- Online Sites list foreclosed properties for sale. While some sites charge a fee for specific listings and updates, they also offer a great deal of free advice about buying foreclosed and/or vacant homes. Among these sites are RealtyTrac® and RealtyStore. These sites offer updated listings and maps of properties that can be acquired through purchase from homeowners facing foreclosure, lenders, real-estate agents, and public auction. Paid subscribers to RealtyTrac receive daily, online reports of properties in a geographic area that they specify, in addition to information on:
- Over a million foreclosed and bank-owned properties
- Property address and ID information
- Microsoft Virtual Earth imaging
- Integrated map-based search
- Estimated property value range
- Comparable neighborhood sales
- Loan history
- Lien history
- Foreclosing loan information
- Tax assessment information
- Bankruptcy records
- Owner, trustee and lender contact information
Organizations with large portfolios of properties may want to consider outsourcing their asset management functions. Doing so may:
- Reduce the number of days a property stays vacant and unsold
- Insulate you from third party claims
- Provide for staffing reductions
For example, Safeguard Properties, LLC is a turnkey resource for all aspects of default property management. It focuses on:
- Preserving vacant and abandoned properties by quickly securing them while protecting against default through conveyance
- Inspecting properties
- Providing experienced REO specialists who offer a comprehensive program to preserve and protect property from foreclosure, to marketable status, to sale.
- Providing title services
- Filing claims on damaged properties
- Assessing property values
- Inspecting for insurance losses