Definition of Bank-Owned Property


Bank-owned property, often referred to as real estate owned (REO) property, is real estate that becomes the possession of a bank or other financial institution due to the failure to sell it during a foreclosure auction. This article delves into what bank-owned properties are, how they are acquired, and what potential buyers need to know before considering such properties.

Understanding bank-owned property

Bank-owned property, also known as real estate owned (REO) property, is a term used to describe properties that were not successfully sold during a foreclosure auction. In these cases, the property becomes part of the inventory of the bank that initiated the foreclosure process.

Bank-owned properties typically come into the possession of a financial institution when a homeowner defaults on their mortgage payments. These properties are then often sold at a discounted price, well below the prevailing market rates. Buyers considering bank-owned properties should be aware that they may require repairs, which can impact the overall cost of ownership.

The acquisition process

The acquisition of bank-owned properties follows a specific process. Typically, the lender, which could be a bank, credit union, or another financial institution providing mortgage services, initiates the foreclosure process when the homeowner falls behind on their mortgage payments.

The foreclosure process usually involves a grace period during which the borrower can catch up on missed payments. The length of this grace period varies among lenders but is often triggered after as few as three missed payments. If the homeowner fails to rectify the situation during this time, the property is scheduled for auction.

At the foreclosure auction, the property is offered to the highest bidder. If it fails to attract a buyer, it reverts to the lender, making the lender the new owner of the property.

Once in possession of the property, the lender may take steps to clear the title, addressing any legal issues related to ownership. Additionally, the lender might undertake necessary structural and cosmetic repairs on the property to enhance its marketability. The property may then be listed for sale, either with a specialized real estate company that deals in foreclosures or with a general real estate agency.

Considerations for buyers

Individuals or investors interested in purchasing a bank-owned property should be aware of several considerations:

  • Title Verification: It’s crucial to ensure that the property’s title is clear before proceeding with any financial aspects of improving or managing the property.
  • Extended Timelines: Transactions involving bank-owned properties often take longer to complete compared to standard real estate transactions. Banks are cautious and deliberate to ensure the sale is secure and doesn’t result in another foreclosure.

Pros and Cons


Here is a list of the benefits and drawbacks to consider.

  • Opportunity to purchase real estate at a discounted price.
  • Potential for a lower down payment and interest rates.
  • Possible need for costly repairs.
  • Extended transaction timelines.

Bank-owned properties, or REO properties, represent real estate assets that have reverted to a bank or financial institution after failing to sell at a foreclosure auction. While they can offer opportunities for buyers to purchase properties at a discount, it’s essential to consider potential repair costs and longer transaction timelines. Conduct thorough research and due diligence before deciding to invest in a bank-owned property.

Examples of bank-owned properties

Bank-owned properties can vary widely in terms of type, location, and condition. Here are a few examples of what you might encounter when exploring bank-owned properties:

Example property 1

This is a single-family home located in a suburban neighborhood. It features three bedrooms, two bathrooms, and a spacious backyard. The property became bank-owned after the previous owner defaulted on their mortgage. It’s listed at a price significantly below the market value, making it an attractive option for first-time homebuyers.

Example property 2

This property is a commercial building situated in a prime downtown location. It was previously used as office space but has been vacant for several years. The bank took possession of it after the business owner could no longer make mortgage payments. Investors may see potential in repurposing this property, but it may require extensive renovations.

Example property 3

Here, we have a condominium in a popular tourist destination. The owner faced financial difficulties and could not sustain the mortgage. This condo is now in the bank’s inventory and is being offered at a competitive price. It’s move-in ready and could serve as a vacation home or rental property for investors.

These examples illustrate the diversity of bank-owned properties. When considering such properties, it’s essential to evaluate your needs, budget, and willingness to invest in potential repairs or renovations.

Frequently asked questions (FAQs) about bank-owned properties

What types of properties can be bank-owned?

Bank-owned properties can encompass a wide range of real estate, including single-family homes, condominiums, commercial buildings, vacant land, and even luxury estates. The type of property that becomes bank-owned depends on the circumstances of the foreclosure.

How can I find listings of bank-owned properties?

You can find listings of bank-owned properties through various channels. Online real estate marketplaces, local real estate agents, and specialized services like RealtyTrac often feature bank-owned properties for sale. Additionally, many large national lenders have departments dedicated to selling these properties.

What are the risks associated with buying a bank-owned property?

While bank-owned properties can offer significant discounts, there are risks to consider. These properties are typically sold “as-is,” meaning you may need to invest in repairs. Extended transaction timelines and potential title issues are also common challenges.

Are there financing options for bank-owned properties?

Yes, financing options are available for bank-owned properties. You can explore traditional mortgages or consider specialized financing options for real estate investors. Keep in mind that eligibility criteria may vary, so it’s essential to discuss your options with a lender.

Can I negotiate the price of a bank-owned property?

Yes, it’s often possible to negotiate the price of a bank-owned property. Banks are motivated to sell these properties and may be open to reasonable offers. Working with an experienced real estate agent can be beneficial when negotiating the price.

What should I do if I’m interested in a bank-owned property?

If you’re interested in a bank-owned property, start by conducting thorough research. Visit the property, if possible, and get a home inspection. Ensure your financing is in order, and consider working with a real estate agent experienced in bank-owned transactions to navigate the process effectively.

What happens if a bank-owned property doesn’t sell?

If a bank-owned property doesn’t sell through traditional means, the bank may continue to market it, potentially lowering the price to attract buyers. In some cases, the bank might auction the property again or explore alternative selling methods.

Are there tax implications when buying a bank-owned property?

There can be tax implications when buying a bank-owned property, particularly if you intend to invest or resell it. It’s advisable to consult with a tax professional to understand the specific tax consequences and potential deductions associated with your purchase.

Key takeaways

  • Bank-owned properties, also known as real estate owned (REO) properties, result from properties not selling at foreclosure auctions.
  • These properties often come at discounted prices but may require additional repair costs.
  • Buyers can find listings of bank-owned properties through various sources, including online services and lenders.
  • Transactions involving bank-owned properties can have extended timelines due to thorough bank scrutiny.
  • Consider the potential risks and benefits, such as repair costs and attractive pricing, before purchasing a bank-owned property.
View Article Sources
  1. REO and Foreclosure Properties – USDA
  2. Foreclosed properties – Travis County Tax Office
  3. Property Foreclosures – Craven County North Carolina