Bank owned properties – What Are They & How Do They Come To Be?
In this day of recession and economic hardship it is not uncommon to hear the phrase bank foreclosure. For those of you who do not work in the finance or banking industry, this term may not be familiar to you.
Bank foreclosures occur when a borrower obtains a loan from a bank or other lending institution and does not fully pay back the loan. In order for the bank to loan money, they usually require some type of collateral which is worth at least the amount of the loan.
When the borrower does not or cannot repay the loan it is said to be in default. Once a loan goes into default, the collateral is relinquished to the bank or lending institution to fulfill the payment obligation.
Bank Possession
Bank owned foreclosures occurs when the bank actually take possession of the collateral and is often referred to as repossession. Usually the collateral is the item being purchased such as a home or car although other items of value can be used as well.
After a certain amount of payments are missed or overdue or a predetermined amount of money is still owed after a set period of time, the bank will then file a public notice of eviction.
The home or property owner therefore becomes aware of the impending seizure of the property. This is known as a pre-foreclosure.
Real Estate Owned – REO Properties
The other type of foreclosure is called a real estate owned or REO in which the house has been taken by the bank already and the home is vacant. Before property becomes REO property it must be put up for sell at a foreclosure auction.
In the United States these auctions are conducted by a county sheriff or other designated official. If the home does not sell or the lender is the highest bidder it becomes REO property.
Often the starting bids at these foreclosure auctions are the amount still owed on the loan which can prove to be a steal compared to the actual value of these homes.
Bank foreclosed homes can be a nightmare for the borrower because not only do they lose their home they also lose all the money paid in on the loan. On the other hand, bank owned homes can be a prime opportunity for anyone looking to break into the real estate market.
Because these homes must be maintained, the bank tries to sell them as quickly as possible. That is why bank owned homes are often available at well below market value which is a definite plus for the home buyer.
There are other advantages as well including the fact that the bank loses money on unsold homes. This makes them more apt to work with buyers that would not be able to get financing as easily on other property such as people with less than perfect credit and low-income individuals.
Also, with these REO properties are the assurance of a clean title, any back taxes are usually paid by the bank at closing, the houses are already vacant, and you can save the six percent sales commission you would be required to pay if the home was listed with a real estate agency.
Conclusion
Bank foreclosed homes for sale are often the safest, easiest and most inexpensive ways for first-time home buyers to get in on the housing market. Bank foreclosure listings are often available directly from the bank and it’s agents.
However, if you are seeking homes outside your general area, it may prove more lucrative to search the internet for bank foreclosed homes for sale. Numerous websites are now totally devoted to listing these types of homes. Many of these websites provide this information for free while others require you to subscribe to a newsletter.
