A bank foreclosure home occurs when the borrower defaults on the monthly mortgage payments and the ownership reverts to the bank. If the bank can’t auction off the property at a real estate auction or if the bids are coming in too low, it will repossess the home and try to sell it, often at a reduced price. Bank owned homes for sale are called Real Estate Owned or REOs.

Advantages of Purchasing REOs

• For traditional homeowners, REOs can remove some of the risk associated with buying foreclosed properties. With bank owned foreclosures, the occupants are gone so you won’t have to worry about evicting anyone. Also with a bank in ownership, you can arrange for an inspection and conduct a title search to see if there are tax liens or other debts against the property, which will become your responsibility. In most cases, the banks will have covered the liens but you can negotiate if they have not.
• The bank usually wants to unload the property as quickly as possible. It may be more open to negotiate on price as well as waive some closing points and offer you a break on the interest rates or down payment..
• Getting financing from the bank also may be possible since banks may be more likely to finance their bank homes. If you have good credit, many banks will loan you the full price and even more.

Disadvantages of Purchasing REOs

• Homeowners forced into foreclosure frequently damage the property. Even though you can arrange for an inspection, bank foreclosure homes are sold ‘as is,’ so whatever savings you made on the purchase may end up back in the house on repairs and renovations.
• Even though banks want to unload their foreclosed properties, bank homes for sale are not necessarily cheap. Banks want to recoup the losses they incurred from the previous owners, especially if loans were under water – larger than the home is now worth.
• Banks are notoriously unresponsive. Be prepared for extra work, unreturned phone calls and even weeks of waiting after you make your offer.

How to Locate REOs

Contact local banks to get information on their bank foreclosure listings; many post the information on their websites. Some lenders have relationships with local realtors who manage and market bank foreclosure homes to the public. Lenders may direct you to these realtors to find out about available properties.