Buying a property from a bank or an investment fund? Make light work of it!

The similarities and differences compared to acquiring properties from traditional sources

After 2015, numerous properties passed into the banks’ ownership, mostly through debt-to-asset swaps or foreclosures. Subsequently, several of them were acquired by credit acquiring companies and, in the near future, more are expected to follow the same path. These properties are referred to as “REO”, meaning Real Estate Owned.  Today, banks and credit acquiring companies have placed more than 6.000 properties on the market, valued approximately at €2.5 billion.  In other words, based on the amount of properties these organizations own, they have become particularly important to the real estate market, since they will inevitably attract interest from prospective buyers.  From the buyer’s perspective, as we will explain later on, it’s really important to know that these organizations emphasize more on the time it takes to dispose a property than its sale price.

The process of buying a REO is quite similar to buying any other property but with a few key exceptions to keep in mind. To start the relevant process, the first step involves getting an authorization letter from the property owner (the bank or the credit acquiring company) that gives permission to the prospective buyer to request and review documents that relate to the property from various authorities, like the Land Registry or Municipalities. Also known as “power of attorney,” this step mainly applies to large projects and developments.  The next step is to arrange a meeting where the prospective buyer will inspect the property.

As long as there is still interest in the property, the prospective buyer must fill out a tender form, which applies to every property these organizations have available for sale. Where the seller answers positively, the contract preparation process commences. With the seller being a regulated entity, the buyer must successfully pass the “Know Your Client” (KYC) process. This is how the seller gets to know the buyer and ensures there is no alarming information. The “Anti-Money Laundering” (AML) process follows, where the prospective buyer must prove the funds that will be used to buy the property come from a clean source or sources. This is called “Proof of Funds.” While all these might sound excessive, the rise in regulatory requirements in the last few years has forced banks to follow these procedures to the letter in order to avoid other issues further down the line.

Upon completion of the KYC/AML process, the contract is signed and an amount of 20-30% is paid in advance. The next step for the seller is to get the tax clearance. The process of completing the transaction moves then to the final stage, where the counterparties visit the Land Registry to transfer ownership of the property.

As we mentioned before, for these companies, the speed of completing the transaction is of the essence, since each day these properties remain on their balance sheets means additional costs. These organizations, usually, set a specific timeframe in which the relevant process must be completed. Therefore, the prospective buyer must be ready in all aspects before submitting their offer. Having the relevant approvals ready beforehand, is even more important in cases where they plan to borrow part of the offer amount to complete the purchase. They should also have all the required documents for the KYC/AML process ready.