Definition of Bank Owned Properties

There are so many terms for distressed properties these days that it can be confusing. "Bank-owned," "short sale," "pre-foreclosure," "foreclosure" and "REO" (real estate--owned) properties all refer to the involvement of a bank in the sale of a property. A bank-owned property has a very specific definition.

Definition

A bank-owned property has gone through a foreclosure process and an unsuccessful auction sale. After an unsuccessful sale, the bank retains ownership. This type of property is also call an REO property.

Distinctions

In contrast to a pre-foreclosure, or a short sale, a bank-owned property is no longer the property of the owner. While a foreclosed property still must go through an auction, a bank-owned property has gone to auction, and after an unsuccessful sale, the home has been repossessed by the bank and put up for sale.

Benefits

For a savvy real estate investor, purchasing a bank-owned property carries the benefit of a low purchase price, typically lower than a foreclosure property. By the time a property moves from foreclosure to bank-owned status, many of the liens and other expenses have been lifted.
With a reduced price also comes the advantage of acquiring a home with equity. If the property is located in a stable area, it's likely that the neighboring property values will be higher.

Disadvantages

Many bank-owned properties are in disrepair thanks to extended periods of vacancy. If you're not willing or financially prepared to make repairs or clear any violations, a bank-owned property probably isn't the best way for you to go. And if the property is not in move-in condition, finding financing can be difficult.
In addition, disclosure statements, including information about lead-based paint, radon, mold or any other problem areas, isn't provided.

Locating Properties

To find a bank-owned property, start with a search of mortgage lender websites. Real estate agents are also contracted to sell bank-owned properties, so look for the term "REO" in any real estate listing to determine if a property is bank owned. You also can contact a local realtor and ask for a list of local REO properties.
Many bank-owned properties are owned by government-sponsored agencies, so searching the websites of Freddie Mac and Fannie Mae will render a list of bank-owned properties.

Financing

Government-sponsored agencies like Fannie Mae, Freddie Mac, FHA (Federal Housing Administration) and HUD (Department of Housing and Urban Development) will assist you with the purchase of a bank-owned property. The FHA 403k, HomeSteps and HomePaths are programs that can help make purchasing and repairing bank-owned properties possible.