What are Bank Owned Homes?

Foreclosure and its consequences

Almost all banks give mortgages to both individuals and organizations to acquire property. The bank however retains the ownership of the property. The bank then gets monthly interest payments for a period of the mortgage tenure. At the end of the mortgage period the ownership is transferred from the mortgage issuer to the one who took the mortgage. However not all people who take the mortgage honor the interest payments correctly.

Some will default more than the grace period given by the financial institution. In such cases the lender will take possession of the property or asset before the tenure ends. This is termed as foreclosure and the property becomes a bank owned asset or bank owned homes. These homes come under the possession of the lender. He is free to auction the asset to satisfy the interest and the initial amount. Anyone with the available resources can bid for the property and secure the rights by paying the money.

Public auction in Canada

Mortgage is big business in Canada and the industry seems to be fledging its wings day by day. The financial institution like a bank that gave the mortgage can foreclose a mortgage loan when the borrower has not paid the interest payments even after the expiry of the grace period. The lender after getting the possession of the home puts it in a public auction. A base price is fixed for the property based on the interest amounts due for the bank and also the initial principal amount. It is the minimum amount for the asset.

The participants in the auction can bid for the asset and the one with the highest bid will secure the rights of the property. Canadian rules state that the winning bidder should have a banker’s check for the amount bid to seal the agreement. Public auction however might not have any takers. Public auction is seen as an option by the bank only if the property can attract a lot of investors. Most bank-owned homes put on auction would not be sold due to lack of takers. Banks then carry out repairs if needed and then try to find any buyer. These homes can be bought by interested parties after negotiation with the bank.

Real estate investment opportunities

This bank owned home may be easy picking for people interested in real estate. However not all of these properties are good options. If the property is able to fetch a good price then the borrower himself would have sold the property and would have been able to repay the debts to the bank. Careful research should be done before purchasing the property. When negotiating with the lender, the repair costs must also be laid down and agreed upon. Banks may charge the buyer for the extra costs acquired during repairs. Banks usually try to clear any litigation with the Canadian revenue agency for any tax arrears. Buyers should however verify the information before buying the property. Such homes may hold hidden potential and it would be tapped by a shrewd investor.