Define Bank-Owned Homes

Whenever a home goes through foreclosure, banks hope that the home will be sold through an auction, which takes the home off their hands. If a new owner takes over the mortgage, then they take complete responsibility including repairs, liens and encumbrances. But it doesn't always work that way. Sometimes other steps and measures have to be taken because the bank could end up owning the home.

Considerations

If a home goes through a foreclosure auction and no one bids on it, no sale can take place and the bank becomes the owner. The property becomes real estate owned (REO).

Significance

The bank will take full responsibility and attempt to sell the home. It may have to evict the current residents and handle any tax liens on the property.

Function

Most banks have an entire REO department operating to handle the fleet of homes they own. Their objective is to sell the home for as much as possible.

Warning

A lot of banks will not finance the home for you if the home is sold as-is. You may want to negotiate this part of the transaction.

Prevention/Solution

Banks try to sell the homes as is with as few repairs as possible. If you are buying a home, it would be a good idea to get a contingency inspection, which allows you to void the sale if there are substantial damages that you don't want to deal with.

Resources

• The process for bank-owned homes