When lending institutions foreclose on a home, it is a tremendous loss to the homeowner and her family. But for those in the market to purchase a new home, foreclosed properties can sometimes be a good place to start looking. In some cases, bank-owned homes in the real estate market can list for much less than what the home is really worth, making it a good buy if you have a little patience and know what to look for.
Definition of Bank-Owned Home
A home that is owned by the bank is also referred to as an REO, or real estate owned home. The lending institution has taken over the title of the home through a court process known as foreclosure, which occurs when a homeowner has missed at least three mortgage payments and is unable to secure the delinquent funds in a timely manner. As owners of the property, banks are required to keep insurance on the home, as well as any membership dues to homeowner associations.
What Do Banks Do with the Homes?
Once a bank has secured the title of the home, they need to sell it as soon as possible since they are no longer receiving mortgage payments and are also tying up their own funds in the home. This is generally done in one of two ways. The first and most widely used method that is used on bank-owned homes is to list the home with a local realtor. In many cases the listing price of the bank-owned home is what is currently owned on the defaulted loan, plus penalties and late charges. Often, this can be lower than what the home will appraise for, or what it is actually worth, particularly if the former homeowner was in the home for a longer period of time and gained equity in the property.
Auctions of Bank-Owned Homes
The second way for a lending institution to sell a bank-owned home is through an auction. This is usually a result of a court order by a judge. The home is auctioned off to the highest bidder with the starting bid usually equal to what is owned on the defaulted loan and auctioneer fees. Most of these sales are required by law to be advertised and usually require a 15 to 20 percent down payment in order to purchase. The buyer must also be able to show proof of financing for the bank-owned home the day of the auction.
Facts on Bank-Owned Homes
When shopping for a bank-owned home, you will generally always see the words "sold as is" in all of the listings. The term means exactly that. The banks, often in another state, do not go into the homes and do any repair work, regardless of the shape of the home. Unfortunately, disgruntled homeowners who know they are being evicted from their homes often let the property go as far as repairs and upkeep are concerned and sometimes even intentionally damage the home.
Some Banks Offer Allowances
Depending on the particular lending institution, some banks will give buyers a repairs allowance of $1,000 to $2,000 to cover damages of the bank-owned home. It is important to understand, however, that those funds will only be released to the buyer at closing. If you are buying a bank-owned home through financing, your mortgage company may require that you make the necessary repairs before closing on your loan.
Tags: bank-owned home, bank-owned home, home through, lending institution, bank-owned home through, bank-owned homes, defaulted loan
