Bank-Owned Properties Offer Great Investment Potential

                                                                                         

The foreclosure routine changes from state to state because of varying laws, but there are multiple common denominators. In general terms, a foreclosure takes place when a mortgage company seizes a property from its owner because they are no longer making payments toward the loan. There are multiple steps to this process. The first step is a notice of default, which is usually filed with the county recorder's office about three to six months after the borrower has stopped fulfilling their financial obligation.

After a notice of default is filed, the property owner has a period of time to request that the loan be reestablished by bargaining with the mortgage company on provisions to get up to date on the loan or to renegotiate the terms of the loan. If the borrower is unable or does not agree to terms to get the loan current, a notice of sale is issued that advertises a date for the home to be put up for auction.

Once a notice of auction is issued, the bank means to go through on its right to repossess the property because of nonpayment. Typically, an auction takes place to sell the home for the maximum price. At the auction, the mortgage company will state an opening bid, or reserve, which generally amounts to the remainder of the loan and unpaid interest and any other fees linked with the process, such as legal fees. If no bids meet the reserve price, the lender will purchase the home, making the home bank-owned or real estate-owned. The lender frequently buys homes sold at auction because the home is valued at less than what is due to the lender. When you buy a bank-owned home, it generally comes with a clean title. However, in most instances the buyer assumes responsibility for property taxes.

A home in foreclosure can be bought outside of the auction process. Interested buyers are able to contact the owner and attempt to bargain for a short sale, which is a scenario where the lender agrees to sell the home for less than is owned on the loan. A short sale is typically more complex than a standard transaction, but buyers can locate some excellent deals if they are prepared to work with the seller and their mortgage company to bargain for a deal.

The first step in a short sale is to resolve on an agreement on price with the seller. Once that is done, the buyer will have to make contact with the loss-mitigation department of the bank that handles the mortgage on the property. The loss-mitigation representative will be the person who can approve the short sale and inform you to what information is necessary before an agreement can be reached.

Because a short sale can be intricate, it is important to retain the services of an skilled real estate attorney who can represent you during the process. Buyers should also be aware that homes purchased in a short sale are sold as purchased.

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