Chicago Bank Owned Properties - REO's
The number of real estate owned properties by banks or lenders (REOs) in Chicago is on the rise, although perhaps not as dramatically as in some regions of the nation. An REO is a single-family home or condo that reverts back to the mortgage lender after an owner fails to repay the loan, the home is foreclosed upon and was not able to be sold at auction. After an unsuccessful foreclosure auction, the bank then assumes title to the property and then attempts to sell it through a listing service or a representative of their bank
According to the American Bankers Association, as much as a 100 percent increase in REOs has been recorded across the country in the last two years. Chicago has fared much better, with the Department of Housing and Urban Development in Chicago reporting that it saw a 6% increase in in foreclosed homes in the Chicago area from 2007 to 2008 while Detroit had a 62% increase for the same period. The number of HUD's foreclosed homes is around 800 for Chicago.
According to a recent Tribune report, Harris Bank of Chicago had $11.5 million worth of REOs by the end of 2007, which was a big increase from the $4.9 million it had in 2006. Numbers for 2008 aren't available yet, but there will certainly be an increase again this year as home foreclosures have increased 60 percent since last year and bank seized homes have almost doubled. Some experts estimate that it will take as long as five years for banks to sell all of the REOs they have title to at this point.
High unemployment rates, home owners who tap into their home's equity with second mortgages they are unable to repay and adjustable rate mortgages that increase monthly payments to unmanageable amounts have all been cited as reasons for increased REOs. Until the economy and housing market rebounds, REOs are likely to continue to rise, turning some banks into unwilling homeowners until they can resell the property.
With those facts in mind, if you're in the market to buy a Chicago condo or home, REOs may be a good option for you if you understand all that goes with them. Most REOs are sold as-is, which means that you assume responsibility for any repairs that are needed to the home. Some banks will make repairs to the condo or home before putting it up for sale, but many don't.
A few banks will provide a termite or pest inspection, but that's not always the case. When negotiating for an REO, you may want to set a time frame for inspections, even though they will be at your own expense, and then present what you find to the bank. Although they probably won't offer to pay for any repairs, they may agree to lower the asking price in some cases. In any case, it's in your best interests not to go into any home or condo purchase blind and to know as much as reasonably possible about the property.
The process generally starts with an offer made by the buyer to the bank for the REO. The bank will then usually have an counter offer, which may be more than what the buyer put on the table. Some banks may be in more of a hurry to sell an REO, but most banks have a separate department to handle them and aren't inclined to sell at rock bottom prices. That could potentially destabilize the value of other homes in the area, homes they might have a vested financial interest in.
If the bank does eventually accept your offer, it may take some time to get the final approval for the sale. They also usually have no interest in financing the sale of their own REOs, so you usually need to have financing in place at another lender.
With more banks offering REOs for sale, buyers will have an option besides foreclosure auctions or developer closeouts when it comes to Chicago real estate deals. As long as you keep in mind the as-is aspect of the condo or house, you could possibly find some good deals. As with any real estate purchase, do your homework and get as much information as possible before you make an offer.