Bank Owned Vs. Foreclosure

The foreclosure process is often an emotional and time-consuming process. A lender typically starts the foreclosure procedure as a means of protecting its interest in the property. A lender does try to help struggling property owners avoid foreclosure. Options exist to solve mortgage or deed of trust delinquencies; repayment plans for past due mortgage payments, loan modifications or even refinancing may get the property owner out of the foreclosure process. But when all efforts fail, the bank eventually may regain ownership of the property.

Foreclosure Process

Foreclosure is a legal process by which the lender retrieves the property and sells it to recover the outstanding portion of the mortgage loan. This process can begin when you become delinquent by 30 days. However, in some states, including California, a lender must provide 30 days notice before initiating foreclosure. This notice is required only for property owners who received their mortgage loans between Jan. 1, 2003 and Dec. 31, 2007. Most lenders, however, will provide notice to protect their interest in the mortgage loan by working with property owners to make financial arrangements. If the lender proceeds with the foreclosure process, the property will eventually be auctioned off.

Bank-Owned Property

Within the foreclosure process, a time frame exists after which the ownership of the property reverts to the lender. This time varies depending on the property owner's situation. After clearing up any liens placed on the property's title, the lender will put the property up for sale at auction. If the property doesn't sell, it becomes a bank-owned or real estate owned property, often referred to as REO properties. Bank-owned properties are typically sold "as is."


During the entire foreclosure process, the property owner maintains ownership of the property. This ownership will be removed only if financial arrangements could not be made with the lender and the foreclosure process results in an auction. However, it is not in a lender's best interest to own the property because the longer it's owned by the lender, the more money the lender loses. Lenders often sell bank-owned properties at lower prices than at the foreclosure auction.

Property Value

Since the foreclosure process is a lengthy one, the price of the property can fluctuate during that time. Although buyers can sometimes get bank-owned properties at a lower price than the pre-foreclosure price or the auction price, buying the property may not be worth the risk. Bank-owned properties may be badly damaged or they may be in bad locations; buyers of bank-owned properties must proceed with caution.

About the Author


Suggest a Correction