Also it is the duty of the bank to properly notify the mortgagor, advertise the foreclosure adequately and bid in at a certain percentage of market value in order to minimize the deficiency created by the sale. If the Bank offered a "deal" pre-foreclosure, they are opening themselves up to possible litigation by the mortgagor. The forclosure process is designed to limit litigation and also protect the homeowner as well as the interest of the bank.
First and foremost - let's say a lender is willing to make a deal on a property. As soon as that property is sold - they have to book it as a loss. Let's say they have 100 properties out there as you described, and they take a 30,000 loss on each one. That's $3,000,000 in losses right out the gate. No way to ever get that money back, no chance to minimize it, offset it - nothing. That's just gone.
That's REALLY bad for lenders.
Now - they decide they do NOT want to take the loss - they hold on to the property even if it sits on the market and turns to crap. That property that they're holding on to is booked as an asset.
Now - this is really important, because banks have to balance thier holdings. They're already taking losses elsewhere, they already do not have the expected cash flow they thought they would have when writing all these loans - if they book losses off of all these short sales - they very well may go completely under. By booking the property as an asset - it's a balance on paper to all those other losses. THey also have the opportunity later on to hopefully try to recover market value for those homes.
You would think they would want to cut thier losses - and get that 225 for the home - but really on paper it's far more worth thier time to have the 350 asset.
Valarie's answer, which follows mine is quite right, the banks do consider the homes they own assets, their name is REO or sometimes OREO--meaning "other real estate owned". Banks consider "short sales" as losses--and because banks hate to report losses, they will hide the asset on their books until an appropriate time and then finally sell or dump the property.
But, Maryann, they're not all banks. Many of these loans were made by mortgage companies and funded by others--third parties--so there are some deals which can be made, (just not as many as late night TV would have us believe.)
In your example, the fair market value is $350,000, and the amount owed is $400,000. You would think the lender would initiate a foreclosure proceeding, and hope that the home would be sold prior to the auction for something in the range of fair market value. Then they might forgive the difference and let the former owner out of his dilemma. But that's not usually what happens. Even if there are bonafide offers, the lenders are not accepting them.
I recently had a home in Brentwood for sale at $220K. It was not worth that much money, but the seller felt she "needed" to ask that much because she owed $190,000 and would have closing costs.in the range of $15,000, and was prepared for an offer in the $205K range. I had estimated the appropriate price to be $149,000 (call that fair market value). She would have none of that price.
The lender took the home from her--by auction--and from me because my client is no longer the owner, and have repriced it at $139K for a quick sale. So there's a deal for somebody. But my wife (also a Realtor) had a house for sale for $200,000, the sellers owed $170,000--but had missed a few payments. The bank scheduled a foreclosure sale, but we found a buyer for $195,000--$25,000 more than they owed, and the bank would not cancel the auction. The sellers called their lawyer who executed a simple bankruptcy and that cancelled the auction, after they closed the sale, everyone was paid off. But it was a shame they had to have a bankruptcy on their credit history. BOTH of these examples were funded by Options One, in my opinion an awful company which I believe is a subsidiary of H&R Block.
So they are all different. Good luck getting a good deal.
Do not ask for costs, do not ask for a long escrow (in fact the faster you can close the better) - make it as easy and simple as possible for the bank to take what money they can from the place.
If they have the confidence that you're capable and willing to close, that there will be no responsibility on thier part other then giving you the property - and they can do it quickly - they're much more likely to consider it, and give it some priority. Otherwise, not worth thier time.
Even the most simple straightforward short sale can take a long time to put through, but once you get more parties involved, the wait grows exponentially.
And still - the lenders have very little incentive to accept a short sale. It really is not in thier best interest to do so. The only people who really get ahead in that situation - is the borrower who was short in the first place.
Yes, they are moving!
04/04/2008 126 Hampstead Rd Derry, NH 03038 $100,000
03/07/2008 16 Beach Street Fremont, NH 03044 $110,000
02/04/2008 87 Wheeler Ave Salem, NH 03079 $136,000
02/05/2008 68 Freeman Hall Nottingham, NH 03290 $165,980
02/22/2008 46 Danville Rd Fremont, NH 03044 $160,000
01/25/2008 80 Old Derry Road Londonderry, NH 03053 $194,900
01/31/2008 18 Merrill Ave Kingston, NH 03848 $203,000
02/29/2008 12 Midnight Sun Drive Epping, NH 03042 $205,000
03/31/2008 23 Birchwood Drive Derry, NH 03038 $175,000
02/26/2008 3 Clark St Derry, NH 03038 $190,000
01/17/2008 92 Danville Rd. Fremont, NH 03044 $230,000
02/22/2008 15 Ham Road Raymond, NH 03077 $210,000
02/29/2008 37 Frost Rd Derry, NH 03038 $230,000
02/05/2008 10 Cheney Danville, NH 03819 $230,000
03/21/2008 2 Beaver Rd Derry, NH 03038 $222,500
02/22/2008 1 Valley Rd Newton, NH 03858 $257,000
01/17/2008 107 Nottingham Rd Raymond, NH 03077 $239,900
02/06/2008 70 Main Street Atkinson, NH 03811 $233,900
04/11/2008 53 Mammoth Rd Londonderry, NH 03053 $253,000
01/25/2008 33 Hilton Newmarket, NH 03857 $275,000
03/07/2008 8 Howard Road Hampstead, NH 03841 $260,000
02/29/2008 19 Palm Drive Greenland, NH 03840 $282,000
01/28/2008 2 Acorn Londonderry, NH 03053 $280,000
02/15/2008 115 Pheasant Run Drive Chester, NH 03036 $301,500
01/22/2008 11 Farrwood Road Windham, NH 03087 $339,000
02/22/2008 21 Kenwood Newton, NH 03858 $370,000
02/15/2008 7 Carriage Chase Lane Atkinson, NH 03811 $420,000
Most of them were sold at or near list price.
Some of what they are saying applies. A bank does look at the REO as an asset. They also look at current market conditions and are paying licensed real estate professionals to do BMO (Broker market opinion) this should give the bank a good idea of the current market value of the property. What happens in many cases is by the time the bank gets this information and lists the property for sale the market has changed. The short answer is the bank is slow to recognize this change. Just keep in mind that what you are hearing on National news about real estate market conditions may not apply in the area of homes youâ€™re looking at. I have seen a few good deals lately however they are not as good as the scenario you had spelled out with a 65% of FMV. I would say if you can get a property for 75-80% of the current true market value it is a good deal. Just remember the banks know this too and once they have spent the money to bring it into foreclosure they are looking at what the expenses â€“vs- return going forward, they have already eaten the cost of the foreclosure. So if they hang on to that property and get 10% more that gains them $22,500 to cover the costs of carrying the property for 6 more months.