How to Research and Buy a Kauai REO Property

Purchasing a home on Kauai during this buyer’s market provides many opportunities for premium properties at very low prices. Some of the lowest prices are found among Kauai REO properties.

Here is everything you need to know about Kauai REOs including what to look for and what to avoid.

Call Scott to check out this listing - MLS 241595.

What is an REO property?

REO means Real Estate Owned. The property is owned by the lender, which is usually a bank.

The reason the lender owns the property is because they were unsuccessful in selling the property at a foreclosure auction. In other words, the minimum opening bid was not met at the foreclosure auction.

The minimum bid is set by the lender based on the outstanding balance on the home mortgage loan. If no one offers this amount for the property then the lender legally repossesses the home.

If the amount owed on the home is more than its value, and it has been repossessed by the lender, then it is listed on their books as REO in the category of non-performing asset.

What is a distressed property?

A property is in a “distressed” status when a homeowner begins to miss mortgage payments.

Once a property becomes distressed the lender (e.g., bank) will typically want to determine the amount of equity in the property. This may be done either through a Broker Price Opinion (BPO) or an Appraisal.

This equity determination is then used by the lender in deciding whether to initiate a foreclosure on the property or attempt a short sale.

When does a property become a Kauai REO property?

During a typical foreclosure, the amount of money that is owed to the bank – including the mortgage loan balance as well as attorney’s fees and other foreclosure fees – will be more than the worth of the property. Since this is the minimum bid at the foreclosure auction, the auction typically will not result in a sale.

If neither a short sale nor foreclosure results in a sale of the property then ownership of the property reverts to the bank and it becomes a Kauai REO (Real Estate Owned) property, which is a lender-owned (bank-owned) property.

What happens after a property is repossessed by the lender and is classified as a Kauai REO property?

Once a property is classified as an REO the bank will likely attempt to sell the property. The lender’s asset management department may oversee the upkeep of the home and complete any needed maintenance or repairs.

The lender will also typically work to clear the title to the property, and will evaluate any offers to purchase the home. The home may be offered for sale through a licensed real estate brokers who specialize in Kauai REO sales.

How does a bank/lender market a Kauai REO property?

Each lender/bank has its own method for dealing with their REO inventory, and some banks have a department specifically for this purpose. All lenders have the same goal of recovering as much of their money as possible.

What happens when you make an offer on a Kauai REO property?

If you do decide to make an offer on an REO property your Realtor will help you present it in a way that has the highest chance of acceptance.

When you make an offer on an REO property the bank will typically make a counter offer, in part to demonstrate to their auditors and shareholders that they made every effort to get the highest sale price possible for the home.

The potential home buyer can then make a counter to the counter offer, and this offer will typically need to go through several levels of approval by the parties involved.

What is involved in the process of purchasing a Kauai REO property?

Navigating the process of researching REO properties, making offers, and dealing with the various issues involved in purchasing a REO property requires attention to many details. This means that it is essential for the potential Kauai REO buyer to work with a qualified and knowledgeable professional Realtor with experience in REO transactions.

How is a Kauai REO property typically offered for sale?

The banks typically want to sell the Kauai REO property “as is,” although it may be possible to negotiate inspections and repairs as well as other precautionary measures to protect the interests of the buyer.

It is important to arrange an inspection contingency period that allows the potential home buyer to terminate the sale if there are significant problems that the lender is not willing to fix.

If this occurs you may decide to renegotiate the sale price with the lender or give the bank a chance to fix the problem even though the property was offered “as is.”

If unforeseen problems occur an experienced Realtor can attempt to renegotiate with the bank in order to save the REO transaction while still protecting the buyer’s interests. The lender may find this preferable to having to put the property back on the market.

Are all Kauai REOs good deals?

An experienced Realtor knows that not every REO is a good deal and also knows that with due diligence it is possible to find some truly excellent deals. This is especially true when the current economic conditions create a buyer’s market, although precautions need to be taken to thoroughly analyze any potential Kauai REO property purchase.

What are some of the things to investigate when researching Kauai REO properties?

A Realtor knowledgeable about the Kauai REO market evaluates properties based on various criteria including the property’s condition, the location, why it became an REO, what liens may encumber the title, the lender’s position, and other important details of the potential REO transaction.

Are REO transactions complicated?

Sometimes REO transactions are more complicated than a normal real estate purchase. The terms of the sale need to be approved by the lender and some lenders are located out of state with limited staffing to process the listing.

A Realtor who is trained in REOs will be able to evaluate all of these factors when analyzing the potential Kauai REO transaction, and is also skilled at moving a transaction along as swiftly as possible with minimal delays.

What is the benefit of purchasing a Kauai REO property?

While there may be some challenges in navigating the process of purchasing an REO, the reward may be a significant discount on a premium property.

Buying an REO allows more flexibility than trying to buy a foreclosure in that you are not bound by an auction date and thus can request your own schedule for inspections and other requirements important to protect your best interests.

Working with an experienced professional Realtor is particularly important when dealing with REOs, short sales, and foreclosures to avoid the pitfalls that may occur in these types of transactions.

Bali Hai Realty Offers Full Range of Kauai Realty Services

If you have any questions about Kauai foreclosures, short sales, or Kauai REO properties (bank-owned properties), please feel free to call the Bali Hai staff as we have Realtors trained in these types of transactions with a strong knowledge of the current Kauai foreclosure market.

Affordable Kauai foreclosures, short sales and REO properties available in today’s market conditions provide a unique opportunity to own a piece of paradise. If you are interested in upcoming REO’s and foreclosures not yet on the market, please contact our REO Expert Scott Goddard Sieverts.

Also feel free to browse through our Foreclosure Galleries to see some premium Kauai properties available now for an excellent price.

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