Real estate business involves huge sums of money in any country and especially in a developed country like U.S. millions of dollars are changing hands everyday. Invariably, these huge funds should come from only financial institutions like Banks.
As a routine of their financial activity, banks make available funding to the real estate home buyers and investors from out of the resources they have from the money deposited by their customers. In the direct lending of home loans to applicants or sub-prime lending on securing the mortgages pledged by the other lenders, Banks use millions of dollars of depositors’ money. To balance this activity and make it a viable one, Banks charge interest rates slightly higher than what they are liable to give to their depositors. They continue to receive the income steadily through monthly installments from borrowers as principal and interest. If this chain breaks for any reason, say by default of the borrower in not adhering to the commitments, then the trouble starts. After waiting for some 3 months, Banks have to take action to get back the money from the defaulters and they start the foreclosure process. In so doing, they have to first send a Notice of default advising the borrower to reinstate the installments with arrears, failing which they have to go for sale of the property by public auction. This is actual foreclosure.
If the property is not sold on the date of the public auction, where no bidder comes forward to tender more than the opening bid, then the Banks have to inevitably take possession of the said property. These properties then become the Bank Repossessed Homes.
The money blocked in these properties is of no use to the Banks and unless they convert these Bank Repossessed Homes into real money they will be incurring loss on the interest income on this capital and are answerable to the depositors. So they eventually offer discounts on the sale price of these properties from 20 to 35% for prospective home buyers of good credit history and financial background.
Banks seek the help of realtors in the locality to get appropriate leads offering to buy these Bank Repossessed Homes. The realtors and agents file the listings on websites like MLS and separate foreclosure listings. The prospective buyers are checked for credit history and recommended to the Banks. Thus Bank Repossessed Homes have thousands of dollars in store as saving for every home buyer of good credentials.
