Bank foreclosed homes are also called real estate owned (REO) foreclosures. When property owners are unable to make payments on their bank-held mortgage loan, the bank forecloses on the property in an attempt to repossess it. This is how a property becomes a bank foreclosure home.
When a homeowner defaults on his or her mortgage loan, the lender may actually take ownership of the property or may have the property sold as a means of paying off the debt. When foreclosure proceedings are complete, the homeowner would have lost all rights to the property. This has a negative impact on your credit score.
Experienced investors know that while a bank foreclosure is being processed, owners may sell their homes in order to avoid foreclosure. This period is referred to as the pre foreclosure period. Often times, owners are willing to negotiate a lower price for the sale of their home during this period so that they can avoid damage to their credit score. In the end, the investor gets a great price while the seller avoids foreclosure and maintains a good credit score. This is a win-win situation for both parties.
If the home is not sold before the foreclosure is processed, the title of the bank foreclosure home is transferred to the bank. Banks, however, do not like to own foreclosure properties. They are in the business of dealing with money, not real estate, and bank foreclosures are a burden on banks for several reasons:
- They are expensive to maintain - The bank must pay taxes, insurance, maintenance and security for their bank foreclosure homes. The longer they hold on to bank foreclosure homes, the more money they lose.
- The bank looks bad - Having a large inventory of bank foreclosure homes on their books highlights their bad lending decisions.
- The bank needs to recover the money lost on bank foreclosures.
Due to these reasons, banks try to get rid of bank foreclosures as fast as they can. This is how investors can capitalize on these properties. It is often possible to negotiate deals where you can buy bank foreclosure homes or government foreclosures at a price that is below market value.
With the incredible opportunity these properties present, you can make a nice profit every time you invest in bank foreclosure homes!
Buying foreclosed properties is relatively risk free, since all other liens have already been eliminated and the bank has a clear title to the property. Once you win the property, it's yours for only the price you pay at sale. Just make sure that you inspect foreclosure homes thoroughly and take into consideration the cost of repairs needed when determining if the price you will pay for a bank foreclosure home is indeed a good bargain. |
