As a prospective homeowner who is looking to squeeze extra value out of your dollars, trying to buy a foreclosed property at a discount sounds like a great idea. Foreclosed homes sell at a significantly lower price than their market value. This is partly because the house comes with a range of issues that require fixing, and also because the bank wants to recover its money - fast.
If you are keen on getting a distressed property at a discount, it's essential to educate yourself more about the process and even bring in a professional to help. Buying a foreclosure is more or less the same as buying an ordinary house. However, some intricacies can be confusing when buying a foreclosed home - especially if you are doing it for the first time.
The reality is, it's easy to feel intimidated by bank-owned and foreclosed homes because they need repairs and a different kind of negotiation than other available options. But all in all, bank-owned homes come at an incredible discount, and if you are willing to go through the curve of the post-foreclosure market, you can end up with the best deal.
So, what is a bank-owned home?
Commonly referred to as real estate owned (REO) home, a bank-owned home is one that has been returned to the mortgage lender after it fails to sell in a public auction. Once the mortgage lender (usually the bank) owns the property, it'll take care of the eviction, settle the tax liens and sometimes, do repairs.
Stages of a bank-owned process
Loan default which happens when the homeowner fails to repay their mortgage for a particular period (usually 90 days) as specified in terms of service.
Foreclosure is where the home is placed in a foreclosure auction. As with any other auction, the lender tries to sell the home to the highest bidder to recover its money.
REO happens when the lender is not successful in selling the home in the auction. So, the bank repossesses the house hence the name, bank-owned. In which case, the lender evicts occupants, if any and liens the home. It then establishes the price and attempts to sell the house- often through a real estate agent or broker.
So, is purchasing a foreclosure ever a good idea?
This will depend on how you approach the process. Often, buying a foreclosed home will allow you to save a lot of money on discounts. Buying a foreclosed home is a smart investment because of the following reasons:
They are discounted
Mortgage lenders and banks don't make money by holding onto distressed properties; instead, they loan out money and collect interest. They also aren't interested in holding on to loans that are not generating returns. So, after taking back the property, the bank is willing to dispose it of as soon as possible to recover their money. In some cases, they are eager to issue out discounts to let go of the property and focus on their core competency.
They don't come with taxes and title liens
Another great thing about buying a foreclosed home is that it comes void of outstanding title liens and taxes. If you know the home buying process, you understand the stress that comes with these claims. With an REO property, the lender clears all these charges, saving you a ton of money as well as the time you would have wasted resolving the taxes and liens.
You don't have to deal with a homeowner
Since you won't be dealing with title liens and tax, you won't have to negotiate with the homeowner or any other seller who has an attachment to the house. If anything, you'll be negotiating with a bank whose only interest is to dispose of the property and recoup its losses.
Option for a home inspection
Unlike buying a home in an auction where you don't get a chance to check it for damages and other issues, REO lets you inspect the home for its value as well as planning.
Undoubtedly, bank-owned properties can be invaluable to smart investors. If you are interested in buying one of these homes but are unsure of the process, it might be in your best interest to bring in a professional team to help.
