The Ins and Outs of Bank Foreclosures

Posted by Nick Niesen on November 8th, 2010

The term bank foreclosure is one which may seem mysterious to many individuals, especially if they have never experienced one and/or are unfamiliar with real estate terms. Bank foreclosures occur when a current homeowner can no longer pay their mortgage, is deemed to be in default and the bank repossesses the home. There are certain things which all individuals should know about bank foreclosures so that they can be more familiar with the term and prevent this from happening to them.

What the Lender Gains from Foreclosures

The lender will profit in various ways from foreclosing on a borrower?s home. The first profit is repossessing the home and putting a stop to any future losses that may occur as a result of the homeowner?s nonpayment from that point forward. Another way the lender profits from foreclosing on a home is that they will be able to sell the home and try to reclaim what was lost such as loan balance, attorney?s fees, court costs and more.

Condition of Title in the Home

When an individual purchases a home in a foreclosure sale, the prospective buyer wants to ensure that title in the home is good and that there will not be any issue with such a thing should they purchase the house. A good tip to keep in mind is that the lender will bid on a home at a foreclosure auction if title is good but may not do so if title is cloudy. Lenders often bid on foreclosure homes at Sheriff?s sales in order to obtain the property and sell it for a greater amount down the road. They will be less likely to do so if title is at issue.

How Lenders Dispose of Foreclosure Properties

There are a variety of ways with regard to how lenders dispose of foreclosed properties. Some lenders advertise foreclosure sales in newspapers while others retain real estate agencies to advertise the properties for them. The lender wants to choose the most effective yet least timely manner when it comes to disposing of foreclosed properties. With regard to the larger lenders, many of these companies have a department within their financial institution which deals exclusively with handling sales of this type.

Investing in Foreclosed Properties

Some individual investors make their living by investing in foreclosed properties. These individuals scan the market for possible goldmines and try to obtain the property for the least amount of money possible thereby making a good profit when they later sell the same property. A beneficial way for investors to find that perfect foreclosed property for sale is to do some independent research at the local courthouse or peruse the newspaper for possibilities. Once the investor has located some potential properties, that individual should calculate the profit margin by subtracting the default amount from the estimated market value. If the property is a good deal, the investor should go about pursuing the purchase of the property.

There are a few tips for investors who are looking to buy foreclosed property. The first is to always include relevant costs and expenses in the calculations when determining profit margin. Secondly, the investor should inspect the property to be sure that they are getting what they are paying for. Third, make realistic offers as those which are not so will be quickly rejected or bid out by another investor. Lastly, once the offer has been accepted by the lender try to sign the purchase and sales contract as soon as possible to ensure that the property will indeed be yours.

Advantages and Disadvantages to Purchasing a Bank Foreclosure Property

There are certain advantages concomitant with purchasing a property that was foreclosed upon. The first advantage is that the price of the property will be much less than many other types of properties which will allow investors to make a good profit when they resell the property. Another advantage to purchasing a home that the bank has foreclosed on is that many of the problems have been remedied by the lender and should not present an issue for the buyer. Lastly, a lower price obtained on the property will mean a lower monthly mortgage payment and accompanying costs.

As for the disadvantages, there is always a chance that an investor who purchases a property in this manner will have difficulty selling it at a later time. Another disadvantage to buying bank foreclosure properties is that the property may be sold as is and lead to the completion of multiple repairs by the new owner.


Bank foreclosure properties are ones which the bank is anxious to sell and the investor is more than willing to buy. With this relationship in existence, it is easy to see how foreclosure properties get sold as quickly as they do.

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Nick Niesen

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Nick Niesen
Joined: April 29th, 2015
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