Repossessed homes are homes whose ownership has been returned to a bank, lending institution, or government agency after the homeowner defaulted on mortgage loan payments. These are sometimes known as “repo homes,” foreclosed homes, or real estate-owned property (REO).
State laws on repo homes and foreclosures may vary slightly; the lending institution generally needs to provide notice to the homeowner before they can repossess the home. After the repossession, the home is usually put up for sale in order to recoup the missed payments.
Many investors and interested home shoppers are looking more and more at repossessed homes due to the various benefits they are associated with. Repossessed homes are often:
- Cheaper than market price because bank is seeking a new owner quickly
- Associated with quicker sales transaction approvals
- Good investment opportunities, especially for persons looking for “fixer-upper” properties or other secondary investment properties
On the other hand, repossessed homes can also have some drawbacks for buyers. A repossessed home may:
- Be subject to valuation disputes and appraisal issues
- Require serious repairs, especially if the property has been unoccupied for a while
- Have additional legal disputes regarding title and actual ownership
- Be subject to various foreclosure fraud schemes and foreclosure listing scams
Most states enforce a “buyer beware” rule when it comes to the sale and purchase of repossessed homes. This means that the buyer must assume certain risks when they purchase such homes. As a result, interested buyers should always obtain a home inspection and appraisal from a neutral professional.
One of the most common types of legal disputes over repossessed homes is that of marketable title. Many repossessed homes have issues with the title, such as unpaid property taxes, zoning issues, or disputes over ownership. These types of legal disputes may require a quiet title proceeding, which is a legal filing that will help clear up these types of issues.
Another, more recent legal issue is that of “zombie title” or “zombie property.” This is where a foreclosure is ended prematurely, leaving the previous owner’s name on the title, rather than the bank owning it. The owner may leave the property, thinking that the home has been foreclosed upon or repossessed. In fact, the bank might not assume responsibility for the property because the person’s name is still on the title. This can cause the property to fall into a state of disuse and disrepair. These and other more serious legal issues such as fraud may require more extensive legal review in a court of law.
Repossessed homes can often be advantageous for property investors, but they may also involve some legal issues that need to be dealt with prior to closing a sale. You may need to hire a foreclosure lawyer near you if you need assistance with repossessed home legal issues. Your attorney can research state laws to determine what your rights and options are regarding the property. If you encounter any legal conflicts, your lawyer can represent you in a lawsuit if you need to recover damages for losses.