Offering 20% of the banks listing price

[Rob Ratch]

Hi all,

I'm relocating and looking for a house to live in, not necessarily invest in, although I have some RE investment questions I'll ask in other forums if I don't find the answers with some searching...

I found a REO property I really want as a home. The house is large and by it's surface specs, already underpriced.
However, the structure has never had a CO or U&O, it has significant construction flaws, including what appears to be a garage built over the un-approved septic system. No septic permits, either.

The bank listed the property in the low $300's. The peak value on Zillow was around $550k, comps are in the $300-400's. The bank has owned it almost a year and a half, unsuccessfully auctioned it twice, and lowered the listing price 3 times.

In light of the problems, is it ludicrous to consider offering $50k for the property? I'd pay that in cash through family gifts.
Assuming I find a lender (which I'd do before making an offer), I'd use a conventional mortgage to demo the house and build a new house.
I've found a few builders that are willing to give me very good deals (thank the economy).
I'm not attached to the property and can walk away, but if this could come together, it would be the best home I could find in the area.

As people that deal with banks and REO's, what are your opinions?