How does a Property become Bank Owned?

If you’ve been house hunting in Denver, chances are you’ve run across the term “real estate” or “bank owned” property. If you aren’t familiar with how a home becomes a bank-owned property, it’s worth your while to learn, as these can be great investments.

It the simplest terms, a real estate owned property is a foreclosed home that is now owned by the lender, such as a bank or creditor. The property was once customer-owned, but because the owner was unable to make the mortgage payments, it is now owned by the bank. These homes will typically go through a foreclosure auction process to recover the amount owed on them, with unsold homes officially becoming bank-owned properties.

Stage 1: Payment Default
The first stage of an REO is payment default. This occurs when the homeowner misses at least one mortgage payment, with a second missed payment resulting in a Demand Letter notice. After 90 days of missed payments, a Notice of Default will be sent.

Stage 2: Auction
The second part of buying REO properties is the auction typically referred to as a “Trustee’s Sale,” this is where the property is placed up for public auction, with the minimum bid equaling the outstanding loan amount, including accrued interest and any fees associated with the foreclosure sale.

Stage 3: Real Estate-Owned
A property that doesn’t sell in the foreclosure auction will automatically become an REO property. At this stage, the bank will attempt to sell the property on their own, usually through a broker. This process generally includes preparing the house for sale, removing the occupants and liens on the property, and determining a price.

Bank-owned properties are homes that do not end up selling at auctions. Thus, the house becomes a foreclosed property and is sold at a discount rate with less competition and less risk.

Advantages of buying a bank-owned property:

  1. No homeowners to deal with
  2. No outstanding taxes to pay
  3. Option to request a home inspection
  4. Can be Sold at below-market prices

If you’re considering purchasing an REO property, the first thing you want to do is find a pro who’s experienced with these types of transactions. At Metrowest we specialize in distressed property sales – give us a shout today and let’s start the process!


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