How To Buy Bank Owned Properties

BUYING BANK OWNED PROPERTIES

On today's podcast episode I talk about buying bank owned properties. This is an important episode because pre-foreclosures and foreclosure auctions are sky rocketing in 2024, and many of these foreclosures that we are seeing now will ultimately end up as bank owned properties.

It is important for you to understand how the foreclosure process works in your State so that you can better understand how many of these foreclosures will become bank owned properties and the timeline of how that happens. Typically, when you have not made your mortgage payment for 120 days, the bank can sue you and initiate foreclosure proceedings. But there is a substantial backlog of people who have not made their mortgage payments who are still not in foreclosure because the bank has not pursued a foreclosure filing yet. No one knows how many of these properties exist but an inside source that I have at one of the largest lenders tells me that it is a very substantial number. So anticipate many more foreclosures.

Another thing to note is that now that prices have declined, there are many homeowners who purchased a property in 2022 or 2023 that have lost their down payment and lost the equity that they had in their home. Some of these homeowners may even be negative equity, meaning they could owe the bank more than what they can sell their property for. In situations like this, people have less incentive to keep paying their mortgage when there is no equity in their home. Add to that financial hardship like a job loss or a disability and it's easy to see how many of these homeowners will simply walk away and stop paying their mortgage. Every one of these properties will ultimately be foreclosed on and end up as a bank owned property. This is why you need to know how this process works and how to bid on these bank owned properties.

Real estate prices peaked in Mid 2022 in most areas. Since then, prices have declined quite substantially. This has become a real problem for many homeowners. As an example, if prices are down 10% year over year, and you purchased a property for $500,000 one year ago, and you put 10% down you would have had a $50,000 down payment and a $450,000 mortgage. But now with prices down by 10% your house is only worth $450,000, which is the amount that you owe the bank. Even worse, if you were to sell your home for $450,000, after paying commissions and closing costs you may only net $405,000. So you effectively have no equity in your home and are actually negative equity. This is what has been happening to many homeowners over the past 2 years since the peak in 2022. If this homeowner has a low interest rate on their mortgage and likes their home and still has their job then they will most likely continue to make their mortgage payment. But you must understand that they will feel way better about this decision if their property had gone up in value since they purchased it. And if they have any type of financial hardship like divorce, job loss or a disability, then if there is no equity they will be more likely to stop paying their mortgage and walk away.

Previously, lower interest rates helped because a home owner was able to refinance their mortgage and pull money out of their property. Because interest rates had gone down, and the value of their house had gone up many homeowners were able to do cash out refinances where they kept the same payment. But now the inverse is happening. Interest rates have gone up, and the value of their house has gone down. So they can no longer use their house as an ATM to refinance and pay off their credit card bills. With no equity, and a financial difficulty, you will find more and more people that will start walking away and will stop paying their mortgage. This will add even more to the number of foreclosures. And all of these foreclosures will end up as bank owned properties.

As an investor, you can bid on and win the au