Learn How to Buy a Bank-Owned House

The foreclosure routine changes from state to state due to varying laws, but there are multiple common denominators. In basic terms, a foreclosure takes place when a mortgage firm seizes a property from its owner because they are not paying toward the loan. There are multiple steps to this process. The first step is a notice of default, which is typically filed with the county recorder's office about three to six months after the borrower has ceased making payments.

When a notice of default is filed, the property owner has a length of time to have the loan reestablished by communicating with the mortgage company on provisions to catch up on the loan or to renegotiate the terms of the loan. If the borrower is unable or does not consent to terms to get the loan current, a notice of sale is issued that gives a date for the home to be sold at auction.

Once a notice of sale is issued, the bank intends to carry through on its right to seize the property due to nonpayment. Normally, 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 balance of the loan and unpaid interest and any other costs 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 often buys homes sold at auction for the reason that 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 liability for property taxes.

A property in foreclosure can be bought outside of the auction process. Interested buyers are able to contact the owner and endeavor to bargain for a short sale, which is when the lender agrees to sell the home for less than is owned on the loan. A short sale is characteristically more complicated than a regular transaction, but buyers can find some excellent deals if they are prepared to work with the seller and their mortgage company to bargain for a deal.

The initial step in a short sale is to resolve on an agreement on price with the seller. When that is done, the buyer will have to make contact with the loss-mitigation department of the bank that holds the mortgage on the property. The loss-mitigation representative will be the person who can consent to 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 alerted that homes bought in a short sale are sold as purchased.