Foreclosures and Bank owned properties
A bank owned property a.k.a (REO) Real Estate Owned is a property that returns back to the mortgage company after a failed foreclosure auction. A foreclosure occurs when a property owner cannot make principal and/or interest payments on their loan, typically leading to the property being seized and sold. Foreclosure is a legal process in which the rights to a property are taken away from the owner and the property is then sold to satisfy unpaid mortgages and liens against the property.
Ending a Foreclosure
The system of foreclosure can end in numerous ways.
One way of ending a foreclosure proceeding is to pay off the default amount during a grace period allowed by the lender and determined by state laws.
Another option for the borrower is to sell off the property to a third-party and use the proceeds to pay off the lender fully.
This enables the borrower to have a bad credit history of foreclosure.
The third method of ending a foreclosure is when a third party buys the property in an auction during pre-foreclosure and the proceeds from the auction can be used to pay off the lender.
Foreclosure sales begin with a minimum bid that includes the loan balance, and any costs association with the foreclosure process like attorney fees.
In order to bid at a foreclosure auction, you must posses a cashier's check in your hand for the full amount of your bid.
If you are a successful bidder, you will be given the property in "as is" condition, which may include someone still living in the property.
There may also be other liens against the property.
Because the amount which is owed to the bank is usually more than what the property is worth why most foreclosure auctions are unsuccessful.
After an unsuccessful foreclosure auction the property then gets reverted back to the bank and it becomes an REO or “real estate owned property”.
How the bank sells the REO
The bank now owns the property and will terminate the existing mortgage loan on the property.
The bank will now handle eviction if necessary.
They will also negotiate with the IRS for removal of tax liens and pay off any home owner association due.
The buyer will then receive a title insurance policy and will take the opportunity to investigate the property.
Each bank or lender works a little differently but share similar goals of getting the best price possible.
Once you make an offer to purchase, banks generally present a counter offer.
It may be higher than you expect because banks have to demonstrate to investors, shareholders and auditors that they
have attempted to get the highest price possible so plan on countering the counter offer.