Bank-Owned Property

What is 'Bank-Owned Property'

Bank-owned properties are properties that are taken into a bank's inventory, after a foreclosure sale. Bank-owned property is acquired by a financial institution when a homeowner does not make their mortgage payments. These properties then sell at a discounted price, much lower than current home prices. A bank-owned property may also be referred to as real estate owned property and abbreviated as an REO property.

BREAKING DOWN 'Bank-Owned Property'

A bank-owned property is a type of property is taken back by lenders during foreclosure. Lenders and banks with the highest bid in a foreclosure gain the rights to obtain the property. Bank-owned properties tend to have low interest rates and low down payments. They can be found through the online service RealtyTrac, or directly through lenders. Large national lending institutions have departments called loss mitigation departments, that sell these properties.

Example of a bank-owned property

Technically, what happens with a bank-owned property is that the lendee is unable to pay back the loan for the mortgage of the home and thus, the property is transferred back to the lender. The lender may be a bank or a credit institution that offers loans. Typically, the process will begin by following the lender’s policy for transitioning into foreclosure. The lender may have a certain grace period, for example, for missed payments before the property is transferred into foreclosure. The missed payment schedule can vary from lender to lender and may encompass as little as three missed payments. From there, if the lendee fails to pay his or her mortgage payments, the property will then go to auction. Once a property fails to sell at a foreclosure auction, the property is then transferred to the bank and the bank now owns the property.

Once a property is transferred to the bank, the bank may clear the title​​​​​​​, but not always, so if you are investing in foreclosed property it is prudent to make sure the title is clear before proceeding with any financial aspects of improving or managing the property. The bank may then make any necessary repairs to the property and it can be re-listed for sale with a real estate company that specializes in foreclosures or with a general real estate company for sale.

If you are looking to purchase a bank-owned property, be advised that often times, the proceedings when dealing with a bank can take longer than typical real estate transactions. Oftentimes, the timeline is extended and completing the sale can be a long process, as the bank wants to make sure the transaction is secure to avoid going into foreclosure again, as well to minimize losses and maximize profit.