Can a bank make more money than what its owed?

I found a property that is being taken back for 50K. Its worth 110K. Can the bank just keep the home and sell it for a higher profit? I thought that the bank could sell it for a higher price to cover liens, judgements, debtors, etc. but can they make even more?

Nate-WI

The difference goes to the homeowner, not the bank.

Chase

That all depends on state law if a third party buys at AUCTION. If they take it back at auction they can sell it for MILLIONS above what they paid and not owe the previous OWNER squat. That’s why they are more prone to take properties back at auction and not deal with a ss. Good question! They have been doing this for the last ten years. Now that prices are dropping we may see a change.

Usually the bank will add in any and all expenses it can find to eat up the auction price of the home. I’ve stood there while a bank rep told the auctioneers he needed an addtional 20% added onto the opening bid ($40,000). So if the “owner” gets anything back at all … I’d be surprised.

And the posters are right in that the banks have been just taking back the houses and trying to sell them through MLS. Although, the prices are very high - many in our area are still on the market unsold after 6 - 9 months - and these houses need a ton of major work. I don’t understand this.

You’re right. I see it everday. In fact 50% of the MLS listings in my area are REOs. I use this info to my advantage when contacting sellers. The reason this is so is because bank/lenders profits are at high levels and they can afford to take back the properties and keep them on the market just as they have been doing for the past 5 yrs. This is nothing new. 96% of their loans are performing so why should they care?

Another point, if they were to start rapidly unloading them cheaply that would affect the market causing MORE fcs. So it’s in their interest to play the game like they do.

EH

The reason this is so is because bank/lenders profits are at high levels and they can afford to take back the properties and keep them on the market just as they have been doing for the past 5 yrs.
Another point, if they were to start rapidly unloading them cheaply that would affect the market causing MORE fcs. So it's in their interest to play the game like they do.

Sorry, but I totally disagree. This has nothing to due with lenders position on their REO inventory.
First. Every company has their own procedures for listing prices. And YES, I agree a majority are overpriced for their conditions, locations and area markets. Most companies will have a drive by BPO performed as soon as the mortgage starts becoming late. So they will have an initial value at this point. Also, this value is often used to determine the banks bidding postition at auction(what they are going to bid). Here’s my first gripe. Inexperienced agent setting values based on exterior drive by only. No idea on the inside, but strictly this persons guess. Once the property becomes REO, then they will have the listing Broker do an interior valuation. Most companies will also either have another agent perform a backup BPO(most think they might get the listing if their values are higher) - not true. Or they will have an actual appraisal performed. This si the kiss of death for me here in FL. The appraisal values are much higher than the market values. Ex. My value comes in “as-is” for $350k. Appraiser comes in $610k. Bank list for $499k. After a few months, sells for $401k.
Another large lender takes their 2 values and list at 110% of the higherst value they received period. These are the same reasons why you always want to order an interior BPO on a SS deal.
Lenders don’t just pull their lisitng prices out of a hat. But as a listing Broker, the process is extremely aggravating.
I’ve never heard one of my REO reps say they want to keep a property on the market for months to get their original top dollar price. In fact, a lot of the companies are asset management companies. They do not set the listing price, their actual client does. They will recommend the list price based on BPO values, but the actual paper holder will set the price. I say $35k, they list for $49k - and it sits for the next 3 months while we do price reductions.
Some of my reps will say that they are not afraid to test the market. So they list high to see what happens. Never fails, some inexperienced agent and their inexperienced investor come in and offer way too much. It happens more times than not. Experienced REO reps know all these tricks and use them daily.

That was a great post… but how are disagreeing with what I said? I don’t know the inner workings like you, but I see the results as you do. I guess you just wanted to vent and I can appreciate that. We all have to do that from time to time. But the beauty of it was you gave a great insight into the behind the scenes workings which doesn’t get mentioned much.

The usual fare is you can get anything because the lenders are desperate. You can get 2nds for 5cents on the dollar, blah, blah, blah. It’s all a bunch of nonsense as you know. Because you are in the biz and not selling a course.

EH

That's why they are more prone to take properties back at auction and not deal with a ss.
Wow. You are actually saying banks WANT to take back properties instead of doing an SSale, and profit more by doing so?
In fact 50% of the MLS listings in my area are REOs
Where are you located where 50% of your listings are REOs? This baffles me as you say "96% of loans are performing" but 50% of homes for sale in your area are defaulted loans that banks had to reposses?!?!
Another point, if they were to start rapidly unloading them cheaply that would affect the market causing MORE fcs. So it's in their interest to play the game like they do
Please explain how unloading some REOs cheaply would cause more foreclosures...?
The reason this is so is because bank/lenders profits are at high levels and they can afford to take back the properties and keep them on the market just as they have been doing for the past 5 yrs.
This just makes no sense. You are basically saying they are making good money so they don't care if they lose money. So they care enough to "make money" as you say by taking back properties at auction instead of dealing with a SS, but they don't care enough to sell them when they actually take them back?

The way you make it sound, banks actually profit from foreclosures… do you not realize most people that lose their homes are upside-down? If someone owes $100k on a home worth $85k, please explain how taking the property back and netting $60-$65k by the time you factor in the time-value of money, commissions, and fees incurred is making them money? Wouldn’t they be better off selling the home at a SS for $75k? SS’s are not designed for investors, rather retail sales, not all short sales(I’d venture to say half) are low-ball offers netting the bank $30k in the same such deal.

Chase

“Wow. You are actually saying banks WANT to take back properties instead of doing an SSale, and profit more by doing so?”

They know that they WILL profit more by taking them back and selling as REOs INSTEAD of doing a short sale.

You see you’re new. Learn.

“Where are you located where 50% of your listings are REOs?”

Atlanta GA. - Which until recently had one of the highest rates of fcs. Now it’s FL. Is that where you are?

“96% of loans are performing”

Yes they are. Go the Mortgage Bankers Assoc. Site or the Real Trac Foreclosure site and see for yourself. You are getting an education now.

“but 50% of homes for sale in your area are defaulted loans that banks had to reposses?!?!”

Yes again. Go to any local mls site. About half don’t list as reos but they are. I’ve done the title research.

“Please explain how unloading some REOs cheaply would cause more foreclosures…?”

I think you misquoted me. I dispute the word some. If they unload ALL the reos cheaply then it will cause a downturn in the average market price thereby leading those owners on the fringe of fc with little equity to walk thereby leading to more fcs.

“This just makes no sense. You are basically saying they are making good money so they don’t care if they lose money. So they care enough to “make money” as you say by taking back properties at auction instead of dealing with a SS, but they don’t care enough to sell them when they actually take them back?”

They are making alot more money than they are losing. That’s why they have record profits. I’m going to tell you again. And did you read the post from the realtor saying it’s not the lenders per se but private investors who are calling the shots. And I told him/her that all I know is what I have had to deal with over the last 5 yrs. Whether its an investor/lender who cares? The result is the same.

It used to be more than five yrs ago you could do a ss. Go ahead now. I could give you alot of reasons why things have changed.

“The way you make it sound, banks actually profit from foreclosures… do you not realize most people that lose their homes are upside-down? If someone owes $100k on a home worth $85k, please explain how taking the property back and netting $60-$65k by the time you factor in the time-value of money, commissions, and fees incurred is making them money? Wouldn’t they be better off selling the home at a SS for $75k? SS’s are not designed for investors, rather retail sales, not all short sales(I’d venture to say half) are low-ball offers netting the bank $30k in the same such deal.”

I’ve used the same arguments with lenders you bring up. What about mortgage insurance? That hasn’t come up yet in your discourse. And this is one of those behind the scenes factors of life that protects the lenders from default. You are obviously in a learning mode. And I appreciate your input. All I am saying is, I’ve spent too many yrs. trying to work these deals. With and without equity. I’m done. When you can come up with money making deals that are verifiable that’s great. Otherwise it’s just talk and theory. And if you do one deal a yr is that a success? Maybe it is for you. Great.

I do rei for a living. I don’t have a job anymore. I don’t want to be a wage slave again. I did that for 25 yrs. With nothing to show after a divorce. I have to pursue deals that work for me in my market. Deals that make me money. Prefcs don’t cut it anymore for me. Every Tom and Dick investor goes after them because they think they are the path to riches. They have been hyped to the limit. Go for it. Good luck.

EH

I've used the same arguments with lenders you bring up. What about mortgage insurance? That hasn't come up yet in your discourse. And this is one of those behind the scenes factors of life that protects the lenders from default.
And mortgage insurance covers lenders losses whether it be an REO or a short sale... so I do not see what your point about mortgage insurance has to do with whether or not they want to reposses it or sell via short sale.
They know that they WILL profit more by taking them back and selling as REOs INSTEAD of doing a short sale.

Please explain. Perhaps you do not know how the time-value of money works. I will educate you… If a bank has a loan for $120k on a home and FMV is $120k also, and they have the option to take $105k now or selling as an REO for $120k in 9-12 months after default, cleanup, and resale, are they really receiving the same amount of money? NO! A bank could reloan out that money if they were to get it now at an avg 6.5% rate, or making $5362.50 to $7150 over this period. Therefore receiving it now will profit them an additional $6k or so.

So:
Property FMV: $120k
Property loan: $120k

Scenario 1:
Short sale offer: $105k
Bank will walk away with $105k now, even though the home is worth $120k. Smart for the bank? We will see.

Scenario 2:
Bank REO sales price of $120k 9 months after short sale offer being declined.

Sales price: $120k
Commissions: $ 7.2k
Legal fees: $ 2k
Cleanup: $ 1k
Holding csts: $ 3k
Time value of not having money 9 months earlier: $5850
Bank net: $100,950

Therefore a shortsale offer of $105k now is smarter to take even if the home can guarantee to sell for $120k when it becomes an REO. You have yet to actually explain how banks make MORE MONEY repossessing properties than they would taking a negotiated payoff amount so please explain yourself!!

William,
I have read your information from other boards, one in particular, and it appears if you absolutely hate short sales and claim most aren’t successful. You had one that worked and you got “lucky” and none of the others would work out for you. Perhaps you could attempt to figure out WHY your other short sales weren’t successful and what you could do differently next time, or you can just claim banks profit(somehow) by taking properties back so that must be the reason they have rejected your short sales. I am not sure if you are any better saying short sales don’t work than the guy hyping up short sales saying you can make thousands and thousands of dollars.

Short sales work tremendously for me as they were never intended for an investor to come in and buy at 65% of market value and then resell at 90%. The goal was to take 90-95% of market value(while still paying me a 6% commission) to sell and get out from the property. If I can make 6% all day long and close 2-3 times the deals as investors(since I’m looking at getting 90-95% FMV for a quick sale), I do not see how short sales are not profitable. Perhaps you were looking at the concept from the wrong angle.

Chase

Short sales work tremendously for me as they were never intended for an investor to come in and buy at 65% of market value and then resell at 90%. The goal was to take 90-95% of market value(while still paying me a 6% commission) to sell and get out from the property. If I can make 6% all day long and close 2-3 times the deals as investors(since I’m looking at getting 90-95% FMV for a quick sale), I do not see how short sales are not profitable. Perhaps you were looking at the concept from the wrong angle.

Chase

Chase,

I’m not an agent anymore. I gave that life up. I agree with you 100%. Investors do not make money on short sales. Period. Like you just said. “Unless. the BPO is wrong”. Like I have said all along. If the BPO is “influenced” maybe it would work. But you say the investors don’t even care about the BPO. So that even makes the possibility of an ss that much less.

Wow! Great to be understood for a change.

EH

I am no longer going to continue to go back and forth with you as you are putting words in my mouth as well as completely disregarding everything that was said. I never said the investors don’t care about the BPO nor did I say investors do not make any money at short sales, therefore you do not agree with me 100%.

Good luck in your narrow-minded future, as they say, “Ignorance is bliss”

Interesting concept. I guess we are on different planes. I speak English and you… Also, I find it interesting the quote you made shows me as making it. What’s up with that? Tell me what I disregarded that you said.

EH

to answer your question:

A lender takes a property to sale they are only allowed to take what they are owed.
If a third party bids over what is owed the surplus goes to the debtor, les any other liens.
If however the property does not sell the lender take s the property back into REO ( real Estate owned) and they give it to a realtor to sell, Now they have no limits to what they can earn.)

The truth is they wont make much really because if there was that much equity and third party bidder would have bought it at the sale.

Make sense.

GQ

That quote was from you, what are you talking about?