What Happens If a House Is Not Sold After Foreclosure?
Other People Are Reading
-
-
When a homeowner does not pay the mortgage, the bank that holds the mortgage can foreclose on the property. This transfers ownership of the property to the bank. At this point, the home is known as a "real estate owned" property, or REO.
-
Banks do not want to hold onto foreclosed homes. Once the mortgage transfers to them, they must write off the outstanding loan. So if a bank loaned Sam $300,000 for a house and Sam defaults on the mortgage while still owing $275,000, the bank loses that amount.
-
-
Initially, banks try to sell foreclosed homes at real estate auctions. Properties are offered "as is," and potential buyers may not be able to access the inside of the house to check its condition. Auctions have a reserve, or lowest amount that the bank will accept, which is not revealed ahead of time. If no offers reach that amount, the house will remain unsold.
-
All the major banks have lists of REO properties that are still for sale. Often, the banks have a specific division that is in charge of foreclosed properties. The FDIC and HUD also have lists of foreclosed homes for sale that they now own. Since the banks are trying to recoup some of their losses, the properties are generally not for sale at bargain prices. You probably won't be able to buy Sam's house for $100,000, for instance. Taxes and maintenance fees may also be outstanding, and the new buyer will be responsible for paying them.
Tenants
-
Tenants are usually served with an eviction notice after ownership of the house reverts to the bank. The amount of time they have to vacate the property varies by state, and sometimes even by county. It can be anywhere from a few days to several weeks. Even if the tenants have paid all rent on time and did not know the house was being foreclosed on, they will be served with an eviction notice and must find somewhere else to live. They also lose their security deposit, because they will not be able to get that back from the former homeowner.
REO Rental Initiative
-
Reacting to the high number of evictions due to the mortgage crisis, Freddie Mac, one of the nation's mortgage giants, launched its REO Rental Initiative in March 2009. Under this program, qualified current tenants and owner-occupiers of a foreclosed property may be able to lease that property on a month-to-month basis. The property will still be actively for sale while it is being leased. Leasing a foreclosed property to the people currently living there helps preserve property values and helps to ensure that the property is taken care of while waiting to be sold. It also helps the current tenants, as it gives them more time to find somewhere else to live.
-
