What happens to foreclosed properties that do not sell at auctions?

You have often heard of foreclosed properties being listed for sale at auctions as part of the foreclosure process, being sold at a fraction of their original cost.  Infomercials tell buyers to grab all the cash they can, and run to the auction to purchase a property for a dime.  Yet, savvy real estate investors would do well to understand the facts behind properties listed, but then not sold at these auctions. 

• Properties that are bank owned because they have been subject to foreclosure, but that have not been sold at foreclosure auction are typically referred to as REO’s (real estate owned).  Many properties are NOT sold at auction, and revert back to REO status because many of these properties are sold for the original loan balance, plus accrued interest and legal fees.  All together, many of these homes cost more at auction then they may be worth.

• REO’s not sold at auction are officially owned by the bank, and now no mortgage loan exists on the property.  The bank then handles the eviction if one is still needed and may pay for necessary repairs.  The bank will also negotiate with the IRS for a removal of tax liens and will pay off homeowners’ association fees. 

• The bank may then list the REO for sale again, but remember, this home may still not be a tremendous bargain.  Buyers are encouraged to do their homework on foreclosed homes and REO’s.

If you are going through a foreclosure or you are hoping to buy a foreclosure, you should have a lawyer on your side to make sure your legal rights are protected throughout the entire process.