Apartment
How Come Mortgage Lenders Don’t Want Foreclosure?
August 18, 2009 by admin · 3 Comments
I am refering to if the loan thats due is worth significantly less than the value of the property. So in that case, why would a lender not want to sell this property and gain all of the profits from the sale?
Like in Texas, if the borrower misses 3 months of payments. Property is worth $300,000. Missed payments, plus the entire loan is $250,000. So why would a lender not want to either sell this property at a tax deed auction or sell it afterwards if their were no bidders? Since they would gain all the profits from the property either way.
If they would not want to go through this foreclosure process given my example given, then would it be possible for me to buy their loan from the lender and have the property go into foreclosure so I can reap the profits?
Tell me what I am not understanding please.
Um, because it takes like a year for the legal process of foreclosure to complete. And by the time that happens, the house has been vacant for a year and has often been totally neglected and vandalized. So, the bank lends out $100,000 for a house.. then after the sheriff’s sale they can only sell it for… like $50,000. OR they can’t sell it at all, which is increasingly the case right now because there are just so many of them.
But, it’s only been recently that banks have been reluctant to foreclose and have been willing to work with buyers. Before the “foreclosure crisis” hit lenders basically showed no remorse.. and were happy to foreclose on anybody who didn’t make payments. It was a small write-off for them, and showed people the consquence of not paying on time. But now it’s just become too much of an expense and a lot of banks are trying to avoid it if they can (although not really trying hard enough in my opinion..)
Banks DO go through the forclosure process that you outlined in your example. If it were profitable we wouldn’t have seen a multi-billion dollar bank bailout. This rash of foreclosures is what has directly lead to the near detriment of our entire financial system. Foreclosure sales are NOT profitable for banks!
But, yes, you can take over a person’s loan. It’s called a “short sale”, and they happen all the time. A third party buyer comes in and negotaites a deal with the distressed owner and the lender. The lender sells you the house for the price of what’s left on the loan. The previous owner walks away empty handed. The house then wouldn’t go into foreclosure, though. You would just then own the house and then you could sell it yourself (nobody buys most of these things at sherrif’s auctions anyway.)
Google the term “short sale” and you can find info.. or go to the library and get a book on real estate investing. I suggest learning as much as you can before getting into this business. You can lose a lot of money in it..
Foreclosure costs banks LOTS of money. LOTs of attorney fees., lots of months without getting paid on their loan, chances are they are not getting repaid on the money they loaned to buyer. And no one at the bank is willing to take responsibility for making decisions which mean the lender is losing lots of money. Houses aren’t selling, so if lender takes over house through foreclosure and tries to sell it and gets only a small portion of what they are owed, they aren’t happy. And state laws are changing, giving borrowers more time to cure their defaults.
Foreclosures cost time and money. If the home owner does have such equity in the house, why did they not just sell it themselves and make ~$50k in the process?
Generally the homes need work because the homeowner has not been able to perform proper maintenance. Not to mention there are likely other liens against the property like 2nd mortgages and back taxes.