Repossessed residences are those whose ownership has been returned to a bank, lending institution or government body following a default on mortgage loan payments by the homeowner. These are also known as “repossession residences,” “foreclosed homes,” or “real estate-owned property” (REO).
State rules on repo homes and foreclosures differ slightly; generally, the lending institution must offer notice to the homeowner before repossessing the home. Following repossession, the home is frequently sold in order to repay the missed payments.
Why Do Banks Possess Homes?
Foreclosure is a last resort, according to banks. You may have heard that foreclosure and eviction are costly for lenders and that lenders would prefer to keep homeowners in their homes.
If a homeowner falls behind on mortgage payments, the lender may be able to work out a forbearance or payment plan. If not, the lender will issue a notice of default, putting the home on the verge of repossession.
However, repossession is not a one-way street. In many areas, repossession necessitates a lengthy notification period and a court order. If a bank decides to go through this process, it is because the bank cannot work out an alternative with the defaulting homeowner.
What Are the Advantages and Disadvantages of Owning a Repossessed Home?
Many investors and property buyers are increasingly interested in repossessed properties because of the numerous advantages they offer. Repossessed residences are frequently:
- Because the bank is looking for a new owner immediately, the price is lower than the market price;
- Linked to faster sales transaction approvals; and
- Excellent investment options, particularly for those seeking “fixer-upper” properties or other secondary investment properties.
Repossessed residences, on the other hand, can have some disadvantages for buyers. A foreclosed home may:
- Be the topic of valuation disagreements and appraisal issues; and
- Need serious renovations, especially if the property has been vacant for some time.
Ask yourself, “Have there been any other legal problems over the title and actual ownership?”
Be aware of several foreclosure fraud schemes and foreclosure listing frauds.
When it comes to the selling and purchasing repossessed property, most jurisdictions apply a “buyer beware” law. When purchasing such residences, the buyer must accept certain risks. As a result, prospective purchasers should always seek an impartial expert on home inspection and evaluation.
What If I Have Legal Issues With a Foreclosed Property?
Marketable title is one of the most typical sorts of legal problems involving seized homes. Many repossessed homes have title concerns, such as unpaid property taxes, zoning issues, or ownership disputes. These types of legal conflicts may necessitate a quiet title proceeding, such as a court file, that will assist in resolving these concerns.
Another recent legal concern is “zombie title” or “zombie property.” When a foreclosure is terminated prematurely, the former owner’s name remains on the title rather than the bank’s.
The owner may abandon the property, believing it has been foreclosed or repossessed. In fact, because the person’s name remains on the title, the bank may refuse to accept responsibility for the property, possibly leading to the property falling into disuse and decay.
These and other more serious legal issues, such as fraud, may necessitate a more thorough legal examination in a court of law.
What Will Happen Next?
When a bank repossesses a home, it is referred to as a real estate-owned property (REO). Investors and clever consumers looking for a deal may attempt to purchase real estate-owned homes at foreclosure auctions, from the seller, or through the bank.
Banks will frequently sell seized properties for less than the homes are worth to relieve themselves of the hassle of maintaining the homes and make a speedy sale.
If you’re considering purchasing a foreclosure property, it’s a good idea to work with a real estate agent who specializes in foreclosures. And, unless you have a large amount of cash on hand, you’ll still need to demonstrate your creditworthiness in order to qualify for a mortgage.
Banks will often wait to list repossessed homes for sale right away. They may choose to sit on the property instead, hoping to achieve a better price later or simply allowing it to fall into disrepair. The bank is responsible for maintaining the property regardless of how long it takes to sell a repossessed house.
On the other hand, banks have been chastised for failing to preserve REOs in minority areas.
The National Fair Housing Alliance filed charges with the Department of Housing and Urban Development against Wells Fargo and the United States Banks. According to the accusations, the banks violated the Fair Housing Act by allowing properties in Black and Hispanic neighborhoods to deteriorate.
It is up to the bank to decide whether to sell or keep repossessed houses on its books. In some states, homeowners who have had their homes foreclosed on retain the ability to redeem the property if they can raise the necessary payments within a set time frame specified by law.
During the pre-foreclosure period, a private investor or buyer may come in to purchase the property before the bank repossesses it. To summarize, not all distressed properties suffer the same destiny.
Avoiding Foreclosure by Selling Your Home
If you’re having trouble making payments or have fallen behind, selling your property to prevent foreclosure is a possibility. If you can sell the house for more than you owe your lender, you can walk away with some cash in your pocket and no loan burden. It is necessary to act promptly to sell; the closer you get to foreclosure, the more problematic the sale will get.
Although some real estate brokers specialize in distressed properties, the sale and closing process should be comparable to that of any other home sale.
What Should You Do if You Are Facing Foreclosure?
Most banks are ready to deal with homeowners who have fallen behind on their payments, especially if there is a genuine hardship.
Homeowners on the verge of foreclosure should call their lender as soon as possible.
If you run into issues, it is imperative that you act on said adversities. You have a possibility of rescuing your home if you contact your servicer and explain what is going on.
There are many resources to help you sort through your alternatives. The United States Department of Housing and Urban Development can connect you with housing counselors who can provide free assistance. The sooner you contact your lender or a counselor, the better your chances of success.
Do I Need a Lawyer to Purchase a Repossessed House?
Repossessed homes are frequently favorable for real estate investors, but they may also contain some legal difficulties that must be resolved before closing a sale. If you need help with repossessed house legal difficulties, you may need to employ a foreclosure lawyer near you.
Your foreclosure attorney can conduct legal research to discover your rights and options surrounding the property. If you have any legal issues, your lawyer can defend you in a lawsuit to seek damages for losses. They can also keep you updated if there are any changes to property laws that might affect your legal rights or options.
Use LegalMatch to find the right lawyer for your needs today and protect your home in the process.