Posted by: Chris Rivers, MBA
Author, The Ultimate Guide To Buying A Foreclosure Bargain In New Haven County
Issue 6 		a
The 5 Top Reasons Why Banks Give Deep, Deep Discounts On Bank-Owned Foreclosures
 

   
If you've been following me for any length of time, then you probably know that I'm biased towards advising my friends, family and clients to ONLY purchase bank-owned properties.

I could give you a dozen reasons why most homebuyers should strictly stick to bank-owned buyers, but instead I'll give the  reasons why banks are  really anxious to give you a bargain deal.

Reason #1:  Property damage starts to mount up. 

When a house sits vacant for too long it becomes run down and raggedy.  Not to mention that in our area it gets cold in the winter and a house has to be winterized properly or pipes freeze and burst.

All in all, the longer a house sits vacant the more money the banks lose on costly repairs and general maintenance.

Reason #2:  The monthly expenses keep adding up. 

While the property is vacant the lender is also still paying the following bills:
  • Homeowner's insurance - covers fire and damage claims
  • Liability insurance - to protect the lender if someone gets injured on property.
  • Property taxes
  • Lawn care
  • Snow removal
  • Real estate appraisal fees
  • Property management fees
  • And more!
There are even some lenders who spend over $1 million dollars per month, just to maintain their properties.

Reason #3:  Lenders must have a reserve savings account to cover their foreclosure properties. 
   
Federal regulators require every lender to keep a certain dollar amount in a reserve whenever someone goes into fo, so the banks loses the ability to make interest on this money by lending it out. 
   
So, when a borrower defaults on their mortgage the foreclosing lender considers that to be a "nonperforming asset" and this reserve account is activiated.  Therefore locking up the lenders money.

Reason #4:  Lenders can't really advertise the listings heavily.   
   
See, banks are stuck in a catch-22.  They can't really pull out all the stops and advertise their listings all over town because folks like you and I will lose faith in them and stop getting loans from them - which is how they make their money.
   
So banks are restricted to "lightly" advertising their properties OR using a REO management company to do their heavy advertising, but that increases the maintenance fees even more.
   
Therefore, when a lender gets a willing, ready and able buyer then they know they've got to make their move and try to get the deal done.

Reason #5:  In order to get buyers lenders try to just sell ALL their properties for 70% - 90%  under market value.
  
Due to federal law, lenders can't sell ALL their properties for 50% off market value because that would really send the housing market into the middle ages. 
   
Therefore, lenders have to find a middle point to entice buyers and still make a profit. 
  
I don't know about you but saving $25,000 off the purchase price of my house is still pretty darn good.

You only have a few days until the $8,000 homebuyer credit expires so click here to get pre-approved for your home.

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