You need a Realtor if you are buying a foreclosure.

These are trying times for many homeowners. Walk away from a mortgage? Something that was unthinkable and morally offensive 10 years ago is now an option many people are choosing. Home foreclosed? Some people who’ve lost their homes to the bank are stripping the property bare, hoping to sell the appliances to recoup at least some money.

As you might expect, buying a foreclosed home comes with opportunities — and certain challenges. Here are five potential landmines to look out for when buying a foreclosed property.

The process is highly impersonal

With a foreclosure, you’re not buying the house directly from the person who lived there. You’re buying it from the bank that foreclosed on the previous owner. And in the bank’s mind, the property is simply an asset it needs to get off its books. The bank doesn’t see it as a place to live or where someone raised a family or even where you’ll potentially raise a family and make memories.
Because you’re dealing with a bank, not an individual homeowner, be prepared to wait for a few days, if not weeks, for a response. Don’t think about writing a cute note or introducing yourself directly or through your real estate agent. For the most part, the bank’s agent doesn’t even show the contract, the pre-approval letter or any of the offer pieces to the bank. Instead, the bank’s agent inputs the data into a website or piece of software. The asset manager — the bank’s seller of the property, in other words — simply sees the bottom line number. For the bank, it’s just a numbers game. Are you getting the sense that this will be a highly impersonal process?

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Don’t expect disclosures

REO stands for “real estate owned.” An REO property is one owned by a bank after going through the foreclosure process.
In an REO sale, there aren’t any disclosures. You won’t have any knowledge of the previous seller’s experience. If there’s not a seller on hand to answer questions about the home and the neighborhood, you’re going into the foreclosure sale blindly. So it’s important to do the most due diligence possible. This may require going to the city’s building department to check past permits and records and to double- and triple-check the preliminary title report.
Bottom line: Work with your buyer’s agent to learn as much as possible about the home and the neighborhood. If the property sold in the past five years, your agent may be able to obtain past disclosures.

Prepare to see homes stripped bare

A multi-million dollar home was once foreclosed on in San Francisco’s Castro neighborhood. Before the seller left, he removed every appliance and expensive light fixture as well as the majority of faucets.
Some homeowners may have struggled to keep the property or even attempted to sell as a short sale, but the bank wouldn’t cooperate. The homeowner may have hard feelings toward the bank and therefore might felt justified damaging the property before leaving. Ultimately, this will hurt the home’s value. You, as the buyer, will be responsible for any fixes. And you should account for any missing fixtures and features in your offer.

Don’t expect the bank to give you credits or fix things

Your offer and the likely discounted list price (discounted from similar comps nearby) should already account for the risk you’re taking on an “as is” property. There won’t be a disclosure about a leaky window or the broken water heater from last year or the outlet in the kitchen that’s not working correctly.
As a buyer, your contract will allow you to have an inspection, so get the biggest and best inspection you can possibly have. If you can get your hands on an old inspection report, review that prior to making your offer.
For example, prior to a home going into foreclosure, the seller had a buyer lined up. The home was to be sold in a short sale. The inspections came up with too many issues, and the buyer walked away. Through the real estate community, the agent representing a potential buyer of the property after it had been foreclosed upon got her hands on the old inspection report. She gave the report to her client, saving him a lot of time and money.

The bank will have its own processes

The bank usually won’t use the local contract from the board of Realtors. Nor will the bank follow any of the norms, processes or mores that are standard in the local real estate community. Instead, the bank will have its own contract that protects its interests. This contract will be followed by dozens of pages protecting the bank from future lawsuits, referring to the sale as “as-is” and putting nearly all the burden on you, the buyer. The bank won’t allow the property to transfer unless it is done this way. In some states, if the bank requires the buyer to use a particular title company, then the bank would be required to pay the buyer’s premium on the title insurance. This could translate into huge savings for the buyer.
To sum up: There are many tempting deals out there among foreclosed homes. You should absolutely consider them — but make sure you’re not getting less than you bargained for.

Some tips on buying Bank owned REO properties

Tips for Buying Bank-Owned REO Properties
While buyers have found few large discounts among bank-owned foreclosures, opportunities for bargain hunters are likely to improve if mortgage defaults continue to increase. Across the country, a staggering number of homeowners are entering the foreclosure process and many are losing their properties to the bank or lender. As the inventory of bank-owned properties grows, lenders nationwide will be more open to negotiate price and other terms. And prospective homebuyers and investors are looking to cash in on rising tide of foreclosed homes.
Caught in the turmoil of the sub-prime mortgage meltdown, a growing number of banks nationwide are scrambling to dispose of their rising inventories of foreclosed homes. Investors and homebuyers who specialize in the bank-owned properties, known as real-estate-owned, or REOs, are having a field day.
Once a home goes up for auction, a bank typically will send a representative to bid as much as the bank is owed. The lender generally will let it go if they are outbid — since they've then recouped their investment. But if the bank is the highest bidder, the property becomes an REO home.
While there are bargains to be found, REO properties aren't selling far below market value yet. One reason is that bank-owned sales transactions can be more complicated, in part because the sale terms must be approved by the lender or the lender's attorneys. Another reason it is difficult dealing with bank-owned properties is that some lenders are in offices far away from where the loss-mitigation department is struggling to process the listings. And with layoffs occurring within the industry, banks are even more understaffed than before.
Here are a few tips for foreclosure investors and homebuyers seeking bank-owned properties:

• Real estate investing, like any investment strategy, is part of an overall financial plan. Before jumping into buying bank-owned real estate, understand the real estate laws, tax ramifications and other financial issues.
  
• Consult with a tax or financial adviser who can help you assess your financial situation. Get your financial house in order first — that way, you know how much house you can buy.
  
• Don't think that foreclosure investing is easy. For every successful real estate investor, there are countless others who have failed. Make sure you spend time studying the market.
  
• Seek professional help. Hire a real estate agent with foreclosure experience. Look for a mentor who can walk you through your first deal.