Bank Foreclosures Basics

Understanding bank foreclosures basics means better investments

Many investors who opt to invest in bank owned property never bother to find out what bank owned properties really are or how the foreclosure process works. While it is still possible to invest without understanding foreclosure basics, it really does put you at a disadvantage. Bank owned homes are properties that have been repossessed after a homeowner has not been able to make mortgage payments.

Banks and other lenders have insurance on mortgages so that even if the homeowner cannot make payments, the lender does not lose all of its money. After due warning, a bank can take over a property or home in the event that a mortgage holder falls behind in payments. The bank can then resell the property in order to recoup the money lost on the mortgage non-payment. When buying discount properties from a bank, consider:

1. Familiarizing yourself with the bank foreclosure market by studying listings.

2. Learning the basics of buying repossessed properties to prepare for your purchase.

3. Tabulating your finances to determine your best options.

View listings of bank foreclosed homes to learn more about the market

Bank foreclosure listings are an excellent way to learn about the market for foreclosures in the area you wish to invest. Perusing foreclosure listings before actually buying allows you to understand what the types of properties available in various condition, as well as their price. This is an important stage of research, since it allows you to distinguish a good deal from a rip off when you eventually do seek to buy.

Participate in training programs to learn about REO properties (real estate owned properties)

Gathering foreclosure information from listings is not enough--once you understand the foreclosure market, you still need to understand how to buy and invest successfully. You must learn how to get low-cost financing, how to make smart home repairs to increase the value of your foreclosure and you need to determine how to evaluate specific properties. Classes and seminars developed and led by successful investors can help you understand the foreclosure market so you can make successful investments.

Use online resources to determine what you can afford and what bank owned properties you can afford

Once you have bank foreclosure information for your market and understand how to invest in this type of real estate, you need to determine specifically what you can afford and how much a bank owned property will really cost. Online mortgage calculators, online credit reports and other online resources are a good way to do your math before approaching a lender. Once you understand the bank foreclosure basics and your financial reality, you should be ready to buy.
  • While many new investors assume that bank owned foreclosures are always sold at a discount, this is not always the case. Buying houses foreclosed by banks can sometimes mean paying above market price. Banks often incur high legal costs when foreclosing properties and these costs get passed onto the buyer. Additionally, many homeowners lose all equity before losing their home, in some cases mortgaging the property for more than it is worth. If a bank has repossessed a property which has been mortgaged at 110% or more, it will try to sell the property for more than market value to recoup the cost. Banks are under no obligation to sell at a discount, even when they comfortably can. As a result, you need to research carefully to ensure you're getting a good deal.