Caution – this document needs editing as it is a cross between Short and Foreclosed information
Bank Owned …
Simple explanation of the relationship between these different terms and how each occurs.
If somebody doesn’t pay their taxes for 90 days the bank has the right to begin to foreclosure on their mortgage.
They are given a period of time to make good on their debt – but if they choose not to or are unable to then:
1) the bank will sell it at a sherrif’s sale
2) they will be evicted
3) their credit is ruined for at least seven years
4) and they will not be able to obtain a normal-rate mortgage during that poor credit rating period of time.
The bank will have a reserve bid (for at least what is outstanding on their loan to the borrower) in place during the sherrif’s sale.
If the property is not purchased by a higher bidder the bank will then become the title holder and the property is shown on the bank’s book as a tangible asset, not a loan but an actual piece of property and classified as “Real Estate Owned” – shown as REO.
After the bank has cleared all liens, encumbrances, cleared the property of personal belongings left behind, made the property safe for entry, and possibly made any repairs they wish to perform … they will then have a realtor list the property for sale.
This property will typically be listed as Short Sale or Possible Short Sale as it has not been foreclosed on yet.
After it has been formally foreclosed on it will then be listed as a Bank Owned property and may also be referred to as a REO property.
REO is simply an acronym for “Real Estate Owned” within the bank’s portfolio as opposed to currency, precious metals, bonds, mortgages, etc.
When you purchase a Bank Owned property there will NOT be a Seller’s Property Disclosure and it will state that the buyer is purchasing the property “as is”.
The ‘bank’ never lived at the property and is not aware of conditions or reports of problems / repairs – just photos taken by the listing agent.
Therefore they can not fill out the seller’s property disclosure with honesty in regard to the questions on the form.
The buyer has the right to make their own inspections or hire a professional to perform the inspections but the bank will not consider making any compensations in regards to the findings of any inspections.
Recommend that you read Purchasing REO and Short Sale Properties.
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