Foreclosure Is An Auction.
If an outside party bought the house from the auction, the bank would receive the proceeds and could write down any losses—the difference between the full value of the mortgage and the price paid at the auction.
Key Takeaways
Generally, banks lose more money on a short sale than on a foreclosure, but there are still times when a short sale is a better option. Sometimes the process of foreclosure is more expensive and involved than the bank wants to handle.
Foreclosed homes are typically cheaper because they are sold by lenders looking to recover the remaining loan balance quickly rather than making a profit. These homes are often sold ``as-is,'' meaning they may require repairs and maintenance, which can lower the price.
Foreclosures yield different aspects of good and harm for the banks. Banks may quickly gain by selling a property that someone did not fully pay a loan for. Indeed, banks can opt to sell foreclosed property so that they recover at least some or all the unpaid balance.
Banks almost always negotiate on the bids they receive – they rarely accept them on the first go-around. They'll review the bids and take the highest offers, negotiating with buyers to get the dollar amount they want for the home.
The sale price of foreclosed homes can be influenced by several key factors: Starting Bid: The auction typically starts with a bid set by the lender, often based on the outstanding mortgage balance. This starting bid can significantly shape the subsequent offers and final sale price.
Many homes in foreclosure have been poorly maintained, They may also have structural issues or water or mold damage; some may be in violation of codes or other standards. Vandalism can also be an issue, with thieves or the prior owners sometimes taking fixtures, appliances, windows, or anything else of value.
Short sales actually bring the bank more money than they would receive in the foreclosure process. This myth that the bank would rather foreclose remains prevalent because of the extreme difficulty people face during the loan modification process.
Banks typically want to avoid foreclosures because they involve legal processes and long-term property management that ultimately costs them more money. A short sale allows the bank to recoup a portion of the loan balance and get the property off their books faster.
Purchasing a Foreclosed Home
The longer the bank has held the property, the greater the odds that it will seriously consider low offers. You could make an initial bid at a price at least 20% below the current market price, or even more if the property is located in an area with a high incidence of foreclosures.
Can a bank take property that is paid off? Yes, but it's unlikely. Some reasons are fraud, chain of title issues, existing liens that were never released.
Also, California's anti-deficiency laws provide that once your lender forecloses it cannot later sue you for a deficiency balance.
Assuming you mean does a bank that made a residential mortgage loan, and never sold the loan, and eventually foreclosed on that loan usually book a loss related to the foreclosure. In that case, yes.
The lender (or firm representing the lender) will calculate an opening bid based on the value of the outstanding loan and any liens, unpaid taxes, and costs associated with the sale. When a foreclosed property is purchased, it is up to the buyer to say how long the previous owners may stay in their former home.
States that had the greatest number of REOs in October 2024, included: California (306 REOs); Illinois (252 REOs); Texas (249 REOs); New York (212 REOs); and Florida (140 REOs).
Who Suffers the Most in Foreclosure? Homeowners suffer the most in foreclosure because they lose the home that they live in as well as take a huge financial loss due to the foreclosure.
Homes in foreclosure are often cheaper than the current market value because the seller is trying to unload the property before losing possession or the lender is looking to move the home quickly.
Increased maintenance concerns: Foreclosed homes may have been neglected by their previous owners. If that's the case, you'll be responsible for fixing any problems after purchasing the foreclosed home.
In California, the previous owner has a time window of 60 days post-foreclosure sale to clear their belongings from the property. If this timeline elapses without the removal of their belongings, the new owner has the right to dispose of them as they see fit.
If the property is newly listed, the bank may be less inclined to accept a significantly lower offer. However, if the property has been on the market for an extended period, the bank may be more willing to negotiate.
Keep in mind that you're typically going to buy a foreclosed home as-is. Whether you're buying from a bank, lender or government agency, they usually won't pay for any needed repairs. Because of that, you should include a home inspection when the opportunity presents itself to uncover any defects in a home.
This means that if your loan falls under California's anti-deficiency protections, you're not going to owe any additional money to the bank after the foreclosure sale.
Local Auctions: Attending local foreclosure auctions or sheriff's sales allows investors to bid on foreclosed homes in person. This method offers the excitement of competitive bidding and the possibility of acquiring properties at attractive prices.