Bank foreclosures lead to a bank taking ownership and possession of property. At a foreclosure hearing, a judge may determine that the borrower has defaulted on the mortgage and the bank has no other recourse but to take possession of their property and sell it to recoup its own chief. The bank will try to sell the property at a foreclosure sale, but it often is not able to sell the property.
REO, or real estate owned, is property that the bank has foreclosed on. This may be in the form of homes, trailers, condominiums, commercial property or just about any other kind of real estate. Smaller banks will have a individual in charge of REO’s, while larger banks may have an entire section whose main goal is to sell these properties and regain the money the bank loaned on them.
When the bank owns the property, it wants to get rid of it immediately and regain as much of the loan principal as possible. Typically, it will market the property through a broker that specializes in promoting bank owned property. Occasionally an REO can be bought by dealing directly with the bank before it goes to a realtor. Banks sell their REO properties”as is,” meaning that they don’t make any promises regarding the state of the property.
The biggest myth is that banks dump REO properties for nothing. Banks are eager to sell the possessions to recover the defaulted loan and regain their expenses since mortgage underwriters need banks to show a reasonable effort was made to recover the defaulted amount of the loan. They need the very best price possible. It’s untrue you can’t inspect the property before taking possession. You’ll be allowed to make inspections at your expense, and if you negotiate, you can get the bank to do a pest inspection and certify the home is free of pests such as termites.
Following a foreclosure, the bank owns the property. It evicts the prior homeowners, pays any back taxes or institution fees and negotiates the elimination of any additional liens on the property. Sometimes, it will make minimal repairs to protect the property from being ruined. Banks sell REO properties to recover their money on the defaulted loans. They have to show the company that backs up the loan they have made a fantastic attempt to recover the money.
Foreclosed properties may be offered at public auction. At the auction, the property is offered to bidders. Often the quantity of the defaulted loan or loans exceeds the value of their property and no bids are offered. The bank then takes possession and the property becomes Real Estate Owned, or an REO, which has to be offered to regain as much of their defaulted mortgage as possible.