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What is a Bank Owned Home?
I was recently talking to one of my previous buyer clients about Bank Owned (REO-Real Estate Owned) homes. He bought a home from me several years ago, and is now selling his house and moving out of the local area. I was telling him that when he starts looking at homes to buy in his new location, that he should ask his Real Estate Agent to look at some Bank Owned homes in that area. There are many of them on the market right now and they are a good avenue for him to get a good if not great deal.
View local Bank Owned listings!
He told me that he saw some Bank Owned homes while searching online, but didnt understand what they were. He said he thought all homes were Bank Owned because of the mortgages that had to be paid.
I often discuss these types of listings with my clients and just assumed everyone understood what they were. To clear up any confusion, let me say that if you buy a home, you are the homeowner, not the bank!
Heres how it works. When you closed escrow on the house you bought (Remember the day you signed a huge stack of paperwork with your attorney or title company?) you signed a deed that states you are the new owner of the property. There are several different types of deeds, but thats another article. Whats important is that you know you own your home as stated in the deed. With that said, you also signed some sort of mortgage instrument that basically says:
1. You owe the mortgage company the money you borrowed to buy the house plus interest.
2. There will be a lien placed on the home to secure the home as collateral for the loan and interest owed.
3. If you do not make your payments on time, the mortgage company can foreclose on your property.
Heres where we get to the real Bank Owned (REO-Real Estate Owned) situation. Normally foreclosure is a last resort for the mortgage company. They will try to contact a homeowner who is behind in payments and are often willing to work out special payment plans until the homeowner can get caught up. If this doesnt work or the homeowner is non-responsive to their requests, they will foreclose.
Here's when we get to a real Bank Owned situation. When the mortgage company decides to foreclose, they will send the property to foreclosure auction. When this happens, the mortgage company will hire a local attorney to act as a Trustee to auction the property off. The Trustee will first issue what is called a Lis Pendens on the property. Basically, the Lis Pendens is notice to the world that the house will go to foreclosure auction at a certain place and time. This is done so that anyone else who has a lien on the property can notify the Trustee they have a lien on the property and be present at the auction to protect their interest and to be sure the property sells for enough money at the auction to be able to recapture their money as well.
If the property does not sell at auction for a minimum required bid (amount owed on mortgage plus fees), the mortgage company becomes the owner of the home. Once they own the property, they will place it for sale in the local real estate market through a real estate brokerage.
Here's another scenario! Lets say there are two mortgages on the home from separate mortgage companies. Lets pretend the first mortgage balance is for $150,000 and the second mortgage balance is $75,000. The second mortgage is usually subordinate to the first mortgage which means after the house is sold at the foreclosure auction, the Trustee will pay the first mortgage company all their funds before any money is paid to the second mortgage company. This puts the second mortgage company at a loss if the home does not sell for at least $225,000 (sum of both mortgages).
The second mortgage company will typically have a representative at the auction to see what price the home is going to sell for. If that person sees that the home is not selling for enough money, he will get into the bidding process and may end up purchasing the home for the second mortgage company provided the market value of the home is more than the value of the bid plus expected selling costs. We now again have a Bank Owned home!
Just as the sole mortgage company did in the first example, the second mortgage holder will now place the home on the market for sale through a local Real Estate Agent in hopes they will be able to make up for the previous money lost.
Time to Refinance?
Information derived from Money Magazine (February 2009) and provided by Deborah Bruno of Wells Fargo Home Mortgage.
Late last year, average rates on 30-year fixed rate loans plunged to 5.1%, their lowest level in decades. If the three statements below describe you, a refinance might pay off.
1. You dont need a jumbo mortgage. Rates havent come down as much for loans of more than $417,000 (up to $625,000 in some markets).
2. Your current rate is 6.1% or higher. A refinance costs a few grand, but if youll drop a full percentage point, youll likely come out ahead over time.
3. You have at least 20% equity. Youll typically need that much of a stake (plus a credit score of 740 plus) to land the lowest rates with no points.
For more information on refinancing, contact Deborah Bruno: 757-222-1428 or deborah.e.bruno@wellsfargo.com
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What is a Bank Owned Home?
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Time to Refinance?
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