• Damaged foreclosed homes can be difficult to repair and subsequently sell.old house image by Steelcraft from Fotolia.com
  
  The mortgage crisis of 2008 to 2010 has created a large inventory of homes that are not inhabited because of foreclosure. Many homes are foreclosed on because of the loss of a job. Others are foreclosed on because of health problems that cause dire financial problems for the residents of the house. Many houses are damaged substantially during the foreclosure process, whether it be by spiteful outgoing residents, vandals that break into the home and create damage or by weather-related events such as flooding and wind storms. The banks that own the homes have three basic options relating to these homes.
  
  

Sell the Home

• Banks that own foreclosed properties tend to hold onto them until they sell, even if the property sells for pennies on the dollar. People that desire to purchase a damaged foreclosed home may use a little-known Housing & Urban Development (HUD) loan designed for the rehabilitation of damaged or obsolete homes. The loan is called a 203(k) loan, named for the section of the National Housing Act that created the loan program. The program is often used in low-income neighborhoods that have a high rate of foreclosure. Using this alternative, all parties involved are provided with a favorable solution: the bank sells the property, the buyer owns a home and the neighborhood is improved by the rehabilitation of a previously distressed property.
  
  

Auction the Home

• Banks that own damaged foreclosure properties may wish to auction the home to recoup a portion of the cost that has been incurred to the bank as a result of the mortgage default. One advantage to the bank is that the home is sold within a short and predictable time frame, as opposed to listing it with a Realtor and potentially waiting for months or longer for a sale. Most states require that a certain minimum bid be obtained for the home to sell. This guarantees the bank a certain return.
  
  

Walk Away from the Home

• Banks that have foreclosure properties that are virtually ensured to not sell because of a large number of market variables often "walk away" from the home. This means that, although the mortgage holder has quit making payments on the loan, the bank does not follow through with foreclosure plans. Unfortunately, this creates a liability for the mortgage holder, as this means that the home is still legally in his name. This frees the bank from having to maintain the home and shifts the onus of all property taxes and maintenance costs to the mortgage holder.