Rehabber / Flipper · Simi Valley, CA · Member since 2010 · 597 posts · 259 votes
Let's say a bank gives a loan on a house, but there is another entity that actually has the Note - maybe the entity loaned the money via the bank or the bank sold the Note to that entity. Then the property goes into foreclosure. What is happening in this case with respect to the actual Note Holder? Does the Note Holder (rather than the bank) determine the minimum bid price at the auction? And when nobody bids on the property and the bank gets it, what happens then? Does the bank pay the Note Holder that minimum bid amount and now the Note Holder is out of the equation?
There are often two parties that are involved on the receiving side of a mortgage. The servicer and the investor. The investor is the one who actually makes the loan. The servicer is the one who collects the payment and escrow, makes the tax and insurance payments, handles calls from the borrower, and forwards their cut onto the investor. It is the investor who ultimately makes all decisions about foreclosure. The servicer, which may well be some bank, is acting as their agent. If it becomes a REO, its now owned by the investor, not the servicer. Again, though, the investor may hire someone else to do the leg work of securing and then disposing of the property.
There are often two parties that are involved on the receiving side of a mortgage. The servicer and the investor. The investor is the one who actually makes the loan. The servicer is the one who collects the payment and escrow, makes the tax and insurance payments, handles calls from the borrower, and forwards their cut onto the investor. It is the investor who ultimately makes all decisions about foreclosure. The servicer, which may well be some bank, is acting as their agent. If it becomes a REO, its now owned by the investor, not the servicer. Again, though, the investor may hire someone else to do the leg work of securing and then disposing of the property.
Thanks for the replies, guys! What you say makes sense, but I have one follow-up question. If an REO is generally owned by the investor, why does the bank always seem to be listed on the title as the owner?
Don't forget about the entities that are "guaranteeing" the mortgage, like FHA (HUD), VA, Fannie, Freddie, and the PMI companies as well. Any of these might appear on title after a foreclosure.
Sometimes the bank is listed on the title after foreclosure because their REO asset management resources will be the ones selling off the property. You might even see some QCD transactions just before a closing to an end buyer, transferring title between entities.
Some banks use holding companies to hold title to their REO (I often see this for loans that were kept "in house").