What are the lending companies going to do with all these homes that are going through foreclosure?
Ryan T asked:
Sell at the market rate? Auction? Go into the property management business?
Sell at the market rate? Auction? Go into the property management business?
Well lets examine the foreclosure process. After three mortgage payments are missed, the bank files a notice of default. After three more months, the home goes to auction. Usually the homes are not sold at auction and then given back to the bank. They then become REOs. Meaning Real Estate Owned. Once the banks have these homes, they want them off their books as soon as possible. So they find real estate agents or visa versa and they sell the home on the open market as a regular home. There can be some great deals if you know where to look. Banks aren’t too specific on the asking price. They just want to make some money and get them out of their hair.
….they are charging the borrowers that are paying on time for the losses.
People are crazy if they think that a major drop in the mortgage interest rates is going to happen anytime soon.
You don’t see a drop in home insurance premiums after a major hurricane or storm do you?
Same with mortgages…when banks take a major loss, someone has to pay for it.
They’ll wait until they can sell them on the open market. All of these properties will be sold “As Is,” because the bank will not be managing them or making any repairs after the previous homeowners move out. But if the banks get a pretty fair price for the property, they’ll be willing to sell. Of course, in today’s market, that may be months or years that they have to hang on to these empty houses.
The banks will not enter the property management business for one reason: liability. If you are renting a house from a landlord and get injured in some way, you can sue and maybe get a maximum judgment for $50,000 or so, depending on how deep the landlord’s pockets are.
Now, if you are renting from a huge bank and incur damages, you can sue the bank. Maybe you’ve made two payments for $2,000 in rent total, get hurt, and sue the bank for $500,000, because the bank has a lot more assets. See the problem for the banks? They’d rather just let the house sit and have neighborhood vandals break windows and homeless people move in as squatters. That costs them nothing besides what they pay for property taxes.
Although that’s a bad option for the community, it’s better for the bank because they will not have to pay millions of dollars to tenants who initiate lawsuits (justified or otherwise) in order to target the bank. So, the neighborhood will see in increase in crime and drug trafficking, homeowners will see the values of their homes stay low due to more run-down homes and empty properties, but the banks will avoid legal liability for these same empty houses.
They are doing all the above. Many homes are on the market at under compariables but still unable to sell. Many are on the market over 100 days. While many others are Auctioning their foreclosures. Once they are recorded at the recorders office the auction prices become apart of the new compariables which will reduce the neighborhood price. The local credit union only has one foreclosure. Due to their prudent lending (No 80/20 loans) they decided to rent out the foreclosure. But I don’t believe many major lenders/banks would go this route. It’s very time consuming for the institution, their geared to lending on renting/leasing.
Hope this was helpful.