The foreclosure process is an unfortunate reality for many homeowners. When an individual is unable to remain current with their mortgage payments, their lender – typically a bank – has the right to foreclose on the property and force the mortgage holder out. Once the property has been foreclosed on, the most common next step is for the bank to try and sell the property via auction. In the event that it is unable to do so, the bank itself will typically purchase the property in question. That being said, bank-owned homes can still be purchased by future owners. Understanding how this process works to buy back a foreclosed home, as well as the specific details surrounding the transfer of ownership to the bank, is valuable knowledge for future home buyers.
If a bank chooses to buy a foreclosure property, they will likely re-list it for sale on the open market. This is accomplished through the assistance of a real estate agent.
Exploring the Foreclosure Process
Depending upon the specific details concerning the mortgage lender and the borrower, initiating a foreclosure will likely not occur until the homeowner is more than three months behind on their payments. In the event that the mortgage lender does decide to initiate foreclosure proceedings, they will first need to ensure that the current tenants no longer live in the property. This is accomplished through the eviction process. Once the house has been vacated, the bank will likely try to clean up the property as needed in order to ensure that it will appear as an attractive purchase during the auction process.
Understanding Foreclosure Auctions
Foreclosure auctions are popular platforms for selling homes at discount prices. In the event that a foreclosed property is not successfully sold at auction, the bank acting as the mortgage lender will purchase the home. At this point, the bank will likely attempt to sell the property as soon as they are able in order to salvage whatever they can in terms of value.
Much like any other individual choosing to sell a property, a bank will list their foreclosed home using a real estate agent. Given the fact that it is in the best interest of the bank to sell the property as quickly as possible, the price of the foreclosed home will often be significantly lower than the actual market value. Again, it is important to note that the bank has no vested interest in keeping the property. Selling the home for the best price possible is the intended objective following a failed foreclosure auction.
Buying Back a Foreclosed Home
Once the home has been re-listed for sale, the bank may have a variety of options available with respect to recouping lost funds from the original homeowner. Once the property is sold, the bank will subtract the total value of the sale from the loan balance of the original borrower. In the event that the sale does not cover the remainder of the loan, the bank may be legally entitled to sue the previous homeowner for the remaining funds. If you have been asking, "Will I owe money after foreclosure?" then understanding these legal statutes is critical.
Whether or not the bank chooses to pursue this action is their decision. However, it is important to observe that the homeowners who chose to stop making payments earlier may be required to do so by law at a point in the future.
In some situations, a very attractive home may arrive at a foreclosure auction and fetch a price remarkably close to its fair market value. Regardless of the specific outcomes, however, it is important to remember that the bank responsible for the mortgage will continue to try and sell the property to a new, qualified owner throughout the foreclosure process as a whole. More information about this process can be found on the websites of major mortgage lenders across the country.
- NOLO: Foreclosure Timeline: After the Sale
- Dummies: Understanding the Foreclosure Process
- Property Metrics: The Foreclosure Process Step by Step
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed Aug. 5, 2020.
- Consumer Financial Protection Bureau. "I Can’t Make My Mortgage Payments. How Long Will It Take Before I’ll Face Foreclosure?" Accessed Aug. 5, 2020.
- Homebuying Institute. "How to Buy a Foreclosure Home." Accessed Aug. 5, 2020.
- HUD. "Dollar Homes." Accessed Aug. 5, 2020.
- Wells Fargo. "Buying a Foreclosure." Accessed Aug. 5, 2020.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community. Ryan's work has been featured at Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.