Bank owned real estate is property the bank owns due to the foreclosure process. After an unsuccessful foreclosure auction, the property reverts back to the bank. Real Estate Owned or REO is another name used for bank owned properties.
Bank owned properties are not always the bargain people expect. Real estate that has been foreclosed upon oftentimes has more money due on the mortgage note than the value of the home. However, there are benefits to purchasing bank owned real estate.
Real estate owned or bank owned properties are complete packages. The foreclosure process has been completed so there are no outstanding loans or liens on the home. The bank has handled the evictions so the properties are empty. Any outstanding tax liens, creditor liens or other fees are negotiated by the bank and the property is given a clean title.
When purchasing bank owned property, research is of the utmost importance. Current market values and how long the homes have been for sale in the area is crucial information for real estate investors. Before the property reverts to the bank, there is an auction to sell the property. The starting bid generally includes the amount of the mortgage note and other accrued costs. These costs can include interest, late fees, attorney fees and foreclosure costs.
When the property is open for bids at the auction it is common that no bids are placed. This is because the minimum bid is generally close to current market value and the home being sold in "as-is condition." There may also be someone still living in the home that real estate investors would have to evict. With minimal savings and extra hassles on the foreclosure home, investors are without motive to purchase the home from the auction.
Once the auction is closed and the foreclosure is finalized the home becomes bank owned. Lenders have different ways in which they sell bank owned properties. Generally, an interested investor will make a bid. The bank will counter-offer with a much higher amount. The real estate investor and bank will counter-offer back and forth until an amount is agreed upon. The bank is trying to recoup as much money as possible on Real Estate Owned properties, so do not be surprised if they counter with a higher than expected amount.
Bank owned properties are oftentimes a better investment choice, other times they are not. The proper research of the area and property will help investors make the right choice for their real estate investment. Market area selling prices, assessing the amount of work needed and average time spent on the market are vital pieces of information that gives investors the knowledge necessary to make the right decision.