With repo homes, the owner typically must be in default for several months before the foreclosure process will be started. Lending institutions want the owners to pay their mortgage because they know reclaiming the property is going to make it difficult for them to get back the money. However, when the owner fails to make the payments or create an adequate repayment method with the lender, the next action is to go to court.
The Following Steps
Once the court gets involved, the homeowner has basically lost the case. Most lending contracts give the lender permission to repo homes when the mortgage goes into default which is essentially considered a breach of contract. Unless the homeowner can proof payments have been made, they are out of luck. The court turns over the property to the lender who then has the chance to resell it through an auction.
Buying Repo Homes
After this stage of the process, investors and home buyers have the option to purchase the property. Their first chance is through the auction when minimum bids normally start at approximately the amount still owed on the mortgage. Some lenders start the bidding at a lower amount because they need people to be interested in the property so they can get it off their hands quickly.
If the repo homes don't sell at auction, they become REO properties which must be sold on the traditional real estate market through a realtor. This provides another buying opportunity.
