Definition and Example of Foreclosed Property Refinancing
Foreclosed property refinancing or bank-owned property refinancing occurs when a bank or lender sells a property it owns after the property has undergone foreclosure and has not been sold to the public in a refinancing auction.
How Does Foreclosed Property Refinancing Work?
A property becomes a foreclosed asset when the homeowner is unable to make their mortgage payments, and the lender initiates the foreclosure process. Although foreclosed properties are usually offered to the public in refinancing auctions, they become bank-owned properties if they remain unsold. The official owner of the property (the bank) now takes on the responsibility of trying to sell it.
Note:
Properties can also become bank-owned if the homeowner passes away while owning a reverse mortgage. The bank or lender may become the owner of the property after the refinancing process, as it provided a loan secured by the property.
Advantages and Disadvantages of Buying a Foreclosed Property
Now that you know how refinancing works on foreclosed properties, should you consider buying one? Here are some advantages and disadvantages to keep in mind:
Highlighted Advantages
Good price: As a buyer, it’s important to understand that banks and lenders do not want to own foreclosed properties. When they do, it means the borrower has defaulted, and they need to cover their losses. Therefore, they often price the property low in an attempt to sell it as quickly as possible. As a buyer or investor, this can help you find a great deal.
No concerned homeowners: You can expect a quick and hassle-free negotiation experience since you are not dealing with homeowners who have a personal attachment to the property.
High investment returns for investors: Thanks to generally lower prices, foreclosed properties can yield higher returns for buyers willing to resell, potentially after doing some renovations or improving the property’s appearance.
No obligations in terms of outstanding mortgages or taxes: Banks and lenders typically settle any mortgage obligations or tax issues, helping to alleviate concern. However, it is always wise to double-check before purchasing.
Highlighted Disadvantages
“As is” sale: Accompanying the urgency that banks and lenders feel to sell their properties, these homes are often sold “as is,” and although you can get an appraisal, you will usually need to make some repairs or renovations before they are ready for occupancy.
Strong competition: Due to the low price, you are likely to face some competition from other buyers, so be prepared with a strategic plan.
Sources:
Wells Fargo. “Buying Foreclosed Property.” Accessed December 24, 2021.
U.S. Department of Agriculture. “What Are Foreclosed Properties.” Accessed December 24, 2021.
Source: https://www.thebalancemoney.com/what-is-an-reo-foreclosure-5214325
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