Foreclosed property is also referred to as bank-owned or real estate owned (REO) property. When an owner stops making their mortgage payments, they default on their loan and the bank begins the foreclosure process in order to take back possession of the home. Once the process is complete and the bank has possession,it becomes "bank-owned" property. The bank then sells the property to recover the amount of the defaulted loan, or as much of the loan as they can get. Because foreclosed homes are typically priced below market value, a bank-owned property can be great buy. However, there are some issues with buying these types of houses that can make the cost less attractive. As a buyer, you should know that the timeline for closing can be slightly longer than a conventional purchase and that the home is usually being sold “as-is.” This means that if you identify a concern during the inspection, the bank will often not fix it.
It is important to note that a foreclosed home is different then an home that is "in foreclosure". A home that is in foreclosure is still owned by the owner and the owner still has a period of time to bring their payments current and avoid losing their home. Many people that are "in foreclosure" choose to try and short sale their house in order to avoid some of the more severe ramifications of a foreclosure.
See information on the differences between a short sale and a foreclosure HERE!
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