Bank owned property is also known as REO property. REO stands for Real Estate Owned. An REO or bank owned property is one that has come back into the lender’s portfolio through the foreclosure process. The terms REO or bank owned properties mean the same – properties that have come back into the lender’s portfolio through the foreclosure process.

When a property is sold through a foreclosure auction, its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders. As a result, not many foreclosure auctions end with the sale of the property, rather the title reverts back to the lender holding the lien. The property reverts to the lender’s portfolio and becomes a bank owned or REO property.

 If you are looking to buy a house as your primary residence or for investment purposes, you can get a huge discount by buying a bank owned property. Most lenders sell bank owned properties below market value.

 Before you buy a bank owned property, make sure you conduct a physical inspection of the property. Bank owned properties are generally sold “as is” which means that the discount you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. Most homes go into foreclosure because the homeowner has financial difficulties. When the homeowner has financial difficulties, the homeowner is unlikely to spend money on maintenance which usually means that the house has not received needed repairs or general maintenance for a while. Sometime a frustrated homeowner who looses a home in foreclosure may vent his frustration on the home and damage the property. You must be prepared to do renovations and repairs.

In this year’s state legislative sessions, lawmakers targeted “foreclosure rescue scams” and “equity stripping schemes” for scrutiny, attempting to protect unwitting distressed homeowners from signing away what little they may have left.

In the past two years, lawmakers in about half of the United States have mandated consumer protections and fines for investors who violate the law. In many instances, these ongoing attempts to restrict real estate investors’ business practices are redefining the distressed property arena.

State Legislatures Tackle Foreclosure Rescues, Equity Stripping

This year, more states have passed laws geared to protect the interests of distressed homeowners and fine real estate investors who fail to comply with the law. These new laws sometimes impose greater regulation on investors than some of the earlier legislation enacted in other states. You will notice that in many states you can still do foreclosure consulting, but as I have always advocated, you must do it the right way!

Summaries of New State Laws

*Florida:
HB 643, now Chapter 79 in Florida law, requires foreclosure
counselors to provide a cancellation provision in written agreement and mandates that a title transfer must be included in a separate contract. This legislation takes effect Oct. 1.

*Hawaii:
HB 2326, now Act 137, also known as the “Mortgage Rescue Fraud
Prevention Act,” requires mortgage foreclosure counselors to provide specific information and disclosures to distressed property owners.
It also regulates “foreclosure rescue” business practices.

*Idaho:
SB 1431, now Chapter 192 in Idaho law, requires that all contracts be in writing when they residential houses in the foreclosure process.
It provides consumers with a five-day right of rescission. It also requires that a warning regarding foreclosure rescue scams is included in foreclosure notification papers and in all written
contracts.

*Iowa:
HF 2653, now law, regulates mortgage foreclosure consultant contracts and mortgage foreclosure reconveyance transactions. This law forbids foreclosure rescue companies from charging up-front fees.

*Maine:
LD 2189, now Chapter 596 in Maine law, has several key-provisions to regulate business practices and transactions aiming to protect
homeowners from equity stripping.

*Maryland:
HB 361, (Chapter 6) and SB 218 (Chapter 5), Provides for the contents of a foreclosure consulting contract; prohibits foreclosure counselors from arranging or participating in a “foreclosure rescue”transaction and specifies acceptable conditions for commissions. 
It also specifies that foreclosure counselors must be licensed real estate brokers who are directed to provide homeowners with research on the value of their homes.

*Nebraska:
Among other things, LB 123, also known as the “Nebraska Foreclosure Protection Act,” regulates foreclosure consulting contracts,generally requiring enhanced disclosure for homeowners and other consumer protections. The law also establishes prohibited actions for foreclosure consultants, contracts and transactions.                                            Meanwhile, LB 851 provides for foreclosure deeds of trust.

*Oregon:
Here, the legislature convened a special session to consider HB 3630, before it was promptly signed by the governor and became Chapter 19 of Oregon state law. This legislation defines duties and restrictions on foreclosure consultants. It establishes requirements regarding foreclosure counseling transactions, contracts and imposes stiff fines and penalties – including jail time, for violators.

*Virginia:
HB 408, now Chapter 485 in Virginia law, provides that entities who participate in or who service foreclosure rescues for profit with the intent to defraud consumers, are in violation of the Virginia Consumer Protection Act and subject to its prescribed penalties.

*Washington: HB 2791, now Chapter 279 in Washington law, requires
foreclosure rescue companies to provide a written contract that gives the original homeowner five days to get out of the deal. The legislation also provides that if the entity that takes possession of the house sells it, 82 percent of the equity must be returned to the original owner.