Buying a bank repossessed property

What is a bank-repossessed property?

A bank-repossessed property is a real estate property that was seized by a lender – usually due to the previous owner being unable to pay their mortgage. So what do banks do with repossessed homes? and how does buying a bank repossessed property work? The bank does not yet own the property, but the owner has given up rights to live in it and must now sell the property to pay back the lender in full – because they have proven unable to pay the loan themselves as originally agreed.

What’s the difference between repossession and foreclosure?

Repossession (known as mortgage repossession) is about paying off the mortgage – the borrower remains on the title while the lender immediately sells the property to recoup the loan amount. Read more about how to negotiate a better mortgage interest rate and pay it off by 35.

Foreclosure is when the lender goes through the legal process of transferring the property title from the borrower to themselves – the lender.

Is it worth it to buy a foreclosed property?

That depends. Foreclosed homes are often sold below market value as the lender does not need to make profit, its goal is to get its money back. This often creates an opportunity for buyers to gain in capital growth more quickly.

It is important, however, to do thorough research if you’re seriously looking into foreclosed properties for sale. It is advised that buyers carry out all the usual due diligence to ensure the property won’t cost all the money potentially saved just in repairs and maintenance necessary to sell at the market rate.

What is a distressed property?

A distressed property or distressed sale is a situation where the owner wants or has to sell quickly, before a deadline. Often the owner will sell lower than the property’s worth just to get the transaction done.

What is a deceased estate for sale?

When a homeowner passes without leaving the property to anyone in their will, the property becomes a ‘deceased estate’. Deceased estates are often something house flippers or keen renovators are on the hunt for as they are usually homes that have been off-market for decades and are ripe for repairing.

What are the PROS of buying a repossessed property?

Why consider purchasing a bank repossessed property? Repossessed properties come with no title transfer fees or duties. On top of this, the longer a repossessed property sits empty, the more losses the property incurs – providing great low sale price potential for the right buyer. These homes can present a great opportunity as investment property – remember, when it comes to property investment the key is buying something with sure and steady capital growth potential plus a healthy rental yield.

Find out 10 reasons to buy an investment property right now.

What are the CONS of buying a repossessed property?

The risks of buying a repossessed property, often called a ‘mortgage sale’, are simple. It’s important to understand that mortgage sales are ‘as is’. This means that your offer cannot include any conditions surrounding repairs – when buying a repossessed house, you agree to buying in current condition.

How does buying a bank owned property work?

What is the process of house repossession?

• Step one: the lender will issue a default notice to the borrower, explaining how the default occurred and how this can be rectified before further action is taken.
• Step two: if the borrower does not attempt to rectify the default as laid out in the default notice, a demand notice will be issued by the lender. In this demand notice, the borrower will be required to outline to the lender how they plan to pay the debt in full. At this point, there are three main options – plan to consolidate debts into one payable loan, sell the property the usual way, or give the bank possession and control of the property to sell on your behalf. The latter is when the home becomes ‘repossessed’.
• Step three: If the borrower does not contact the lender after receiving the demand notice, the lender will likely begin court proceedings in order to obtain possession of the property. The homeowner/lender will have to vacate the property if the court grants the lender possession.
• Step four: Repossession of a property is always the last resort. If no resolution is reached through all of the above steps and the lender is granted possession of the property. From that point forward, the borrower will have no involvement in the property sale process.
• Step five: When the repossessed property is sold, any profits above the loan amount will be paid to the borrower. However, if the property sells below the amount of the loan, the borrower will still be required to come up with whatever amount is still owing.

This is where lenders’ mortgage insurance comes into play. Those with lenders mortgage insurance will have any remaining sum covered rather than having to come up with that remaining sum on their own.

How are repossessed homes sold?

The repossessed home must be vacated by the owner. Next, the lender will put the property up for sale through a real estate agent of their choice.

This all happens much like any other property sale, but the lender acts as the owner with authority over the sale and then communicates with the owner (borrower) once the sale has been transacted.

How long does it take for a bank to repossess?

In Australia, the initial default notice will give you 30 days to rectify missed mortgage payments. If no action has been taken after those 30 days, the lender can move to court proceedings. At this point, if the house is vacant the lender can take possession straight away. If the property is live-in at the time, the lender must get a ‘statement of claim’ from the courts, asking you for possession.

From that statement of claim, the borrower has 28 days to respond. Without a response, the court can give the lender an order for possession and a judgement for the whole loan balance plus legal and court costs to be repaid.

How does buying an occupied bank-owned property work?

For a buyer, it’s the exact same process as with buying any property. The property may be sold via auction or privately negotiated treaty.

Are bank owned properties negotiable?

Just like any other property, you can negotiate the sale price of a bank-owned or repossessed property. Remember, the bank is specifically looking to recoup the money lost by the defaulted home loan so they are unlikely to go below this number. Learn how to negotiate when buying a house.

Can I get a home loan for a bank auction property?

Some foreclosed properties will need to be settled with cash. This is all to do with the lender’s terms. This means you may be able to purchase a foreclosed property with a home loan, but it will be a case-by-case situation, depending on the lender of each property.

Get to know strategies for buying property at auction.

Buying bank-owned property with cash.

Offering cash is the easiest way of buying a bank-repossessed property. This is of course only an option for more established property investors or those with capital – potentially from years on the property ladder.

How to find bank repossessed properties?

How to find out which bank has repossessed a property?

To find out about repossessed properties up for sale, start by reviewing major bank websites or contacting an REO (Real Estate Owned) specialist.

How to buy a bank-owned property not on the market?

There is less competition involved when you find a bank-owned property before it is offered for sale. To get in first, you need to stay up to date with a range of lenders or professionals that have their finger on the pulse with those lenders.

See PROS and CONS of off-market property sales.

Bank repossessed commercial properties

Not unlike residential properties, it is not unlikely for commercial properties to become distressed / bank-owned due to the same circumstances. The one key difference, however, is that upon bank repossession of a commercial property, the lender is more likely to take a loss in the sale just to get the property off their hands to avoid taking on additional holding costs. Whereas with a residential property, the bank is obligated to get the highest sale price for the property.

Other things to know when buying a bank owned property

Here are the top tips for buying a bank repossessed property:

1. Get pre-approval first if you will need a loan for the property
2. Be prepared to buy as-is – sale of bank-owned properties are not up for conditional negotiations and offers. When you buy the property you will take on any issues and repairs
3. With that said – have some funds set aside for whatever work needs to be done to the property after purchase to bring it up to standard for occupying or tenancy.
4. Never buy sight-unseen.
5. Know the local market – come prepared with an understanding of what this home is worth at market value to avoid overpaying.

Learn more about assets that can be taken or sold during bankruptcy.