What is a Bank Repossession?

A bank repossession occurs when an individual or company is no longer able to make payments on a loan. When such a loan is made to cover the purchase of an item with a high cost — like a car, a house, or materials to begin a business — the bank will often take possession of the property. The lender then sells those items at a price often lower than the initial purchase price in an attempt to quickly recover its financial losses.

A house that has undergone bank repossession may also be known as a real estate owned property (REO). Banks typically provide homeowners with a specified amount of time to either vacate the premises or pay a certain amount of the loan to avoid repossession. If the homeowner cannot repay the given amount and chooses instead to vacate, then the bank assumes ownership of the property.

Auctions are a common means for banks to quickly liquidate real estate. An auction notice is often placed on the front door of the house, alerting interested parties to the day and time of the sale as well as the amount of the opening bid. If the homeowner becomes able to pay, in an amount satisfactory to the bank, before the precise hour the auction is scheduled to begin, it may be canceled.

When a bank repossession of a car occurs, the lender will typically send a repossession representative, also called a repo man. This individual will pick up the car and take it to a repossession lot, where it will remain parked until the owner can pay to take it back or the bank chooses to sell it. Most vehicle repossessions are performed by an agency that only handles that type of work. This agency may repossess automobiles for banks, car loan companies, and car lots that sell new and used autos.

A bank repossession typically remains on an individual's credit report for several years, and lowers his or her overall credit score. This can be damaging because it shows prospective future lenders that the individual is not responsible or timely in repaying his or her loans. It usually also generates a large fees for those wishing to regain the repossessed property.

Some may wish to let their personal property be taken by bank repossession instead of paying any amounts owed. Repossession typically occurs after many payments have been missed. Once the property has been taken, the price to reclaim it is often the full amount of the missed payments and any additional fees associated with its repossession. If an individual initially began missing payments due to financial difficulties, he or she is unlikely to be able to afford to reclaim the property after the expensive process of repossession has been begun by the bank.