Statistically, the Lehigh Valley including Allentown, Bethlehem, and Easton, has suffered fewer property foreclosures
than the hardest hit areas located in California, Florida and parts of the country's southwest. However,
the Valley real estate market is experiencing an approximate 4% to 25-35% increase in the number of
foreclosed properties that are put on the market as REO (Real Estate Owned by a bank) properties there is also an
increased interest in buying these properties.
What is a Foreclosure or REO (Real Estate Owned by a bank) properties?
Generally, when a residential property with a house built on it is purchased, the new buyers apply to a bank or
lending institution for a loan, called a mortgage. When the buyers are approved for their mortgage, the bank
promises to supply money to the sellers at the settlement or closing. By accepting the terms of the mortgage
the buyers create a business contract between them and the bank.
Once the buyers sign the mortgage papers at the closing or settlement and take possession (get the keys) to
their new home, they create a legal obligation to the bank to repay a part of the mortgage each month. The
mortgage terms, along with establishing the interest rate, payment amount, etc., include a provision that
allows the bank to sue for possession of the property (land & house) if/when the buyers do not make the monthly payments.
At some point during the first 1-3 months after the buyers/owners stop paying their monthly payments to the bank,
the bank will send a letter to the owners that states that the property is in foreclosure and the
bank will sue for ownership if the payments are not made in a timely manner.
Depending on state regulations and the bank's current approach to non-payment by an owner, a similar letter will
go out each month to the owners. On the 5th or 6th month after the owners have stopped making payments, the
letter contains notice that the bank will foreclose on the property and take possession from the owners if
payment is not made by a specific date.
If payment is not made, the bank goes to court and sues for ownership of the property. When the bank gains
ownership, it is said that the bank foreclosed on the property.
Impact on a Home Owner When the Bank Forecloses
All people must vacate the house.
The people, who signed the mortgage, receive a very negative impact to their credit rating.
If there was a 1st and a 2nd mortgage on the property, the bank owning the 2nd mortgage may continue to pursue payment of the 2nd mortgage.
Individuals, who signed the mortgage, may need to seek bankruptcy for relief.
What should buyers of REO / Foreclosed properties expect?
A foreclosed property may represent a property priced below the market value of most other homes in the same neighborhood.
REO properties may be without electricity. Foreclosed properties are often without oil or gas and the furnace doesn't work.
And they may be winterized… the water has been drained from all the pipes and turned-off and replaced with anti-freeze
to prevent the pipes from breaking when the weather gets cold.
Most REO properties will be in poor shape. In some cases, all copper pipes have been stolen for resale.
Expect to practice a lot of patience. The REO seller representative, although represented by a local real estate agent,
hasn't seen the property, is probably over-worked and may seem not to care whether you buy the REO property or not.
The seller, the bank or the company hired to manage the bank's foreclosed property sales, will be very demanding and inflexible.
For example, normally the buyer will be required to sign an additional group of documents that are written by the bank's lawyers.
Some banks may require the buyer to pay the full 2% (of sale price) Pennsylvania Transfer Tax. Normally this is split equally
between the buyer and seller. Each paying 1% as part of their closing costs at settlement.
Can anyone buy a REO property?
Allentown, Bethlehem, and Easton area investors, first time home buyers, etc. can consider buying a REO property.
Working with an agent, who has REO experience, will be an advantage.
Buying a foreclosed property is like a roller coaster ride… Be ready to experience lots of ups and downs during the process.
REO / Foreclosure Sale Time Line
The process to buy and take possession of a REO property may take between 25 days to 2 months. In between, you will need to
decide on taking-on the additional inspection responsibilities of getting electricity, gas, water, etc. turned-on, etc. Sometimes,
it is advised to do any inspections before submitting an offer.
With a Lehigh Valley Foreclosure Property, you typically get what you get. The properties are being sold as-is and there are no
negotiations for any type of home repairs.
Want more information about Lehigh Valley REO Foreclosures?
|Joe Finnerty||- or -||Joe Kaminski|