Home Buying in 55391>Question Details

Dobie, Home Buyer in Elk River, MN

Why are the banks holding so many homes and not listing them for sale?? Somehow they must make money on people going into foreclosure.

Asked by Dobie, Elk River, MN Fri Sep 9, 2011

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I just read a statistic that 20% of local sales (Twin Cities) are cash deals. That signals to me that investors are out in force. My investor clients see huge bargains right now and are trying to take advantage of current low pricing before values go up. A very popular investment strategy right now is to buy a solid home at a good value and turn it into a rental. There are still many consumers out there who went through foreclosure and need a nice rental property until there credit clears and they can buy again in the future. These investors attempt to earn a nice return on investment with rental income. They also anticipate that when they do sell in a few years that home values will be higher and they will make a profit on their investment.

This scenario is not only possible, however, for the uber wealthy. With mortgage rates at record lows, if you have good credit you too can reap the benefits of this buyers' market. Personally, I am in the market to buy rental property as a way to save for my children's future. And I know many other real estate agents who are doing the same. When you see so many professionals gobbling up real estate, I think that is a pretty good sign its a great time to buy.

Good luck to you all and if anyone wants some help navigating this exciting and everchanging market in the Twin Cities, just give me a call. I'd be delighted to help! Tammy Maddrey 952-738-1331
0 votes Thank Flag Link Wed Dec 19, 2012
Dobie,

Thankfully they don't put all of them on the market at the same time, if they did we would see property values spin out of control something the banks are aware of so they feed properties onto the market at a slower pace to keep their assests at a higher value and their losses to a minimum.

Just my two cents....Good Luck!
0 votes Thank Flag Link Fri Sep 9, 2011
I am a RealtyTrac agent so I see all of the lender owned properties that are in the pipeline at various stages.

The stages are:

1. Behind on the mortgage at some point it is published.
2. Sheriff's sale notification is sometime between 90 days and a year.
3. Sheriff’s sale is generally 60-120 days after notification unless stopped by lender for Short Sale, Loan Modification, Deed In Lieu of Foreclosure, Reinstatement, Forbearance or Repayment Plan, Rent the Property, Bankruptcy or Refinance, .
4. In Minnesota after a Sherriff’s sale there is a six month right of redemption. That means a party or owner can pay the amount due (generally the lender many times lower than the amount owed) plus fees redeeming the property from foreclosure. If it is a third party they must wait for possession until expiration of the redemption period.
5. If not redeemed it is now lender owned and it enters the process which for different lenders/investors is a different timeline.
6. In the metro Minneapolis market there are about 4 lender owned (shadow inventory) homes for everyone one for sale. Many times they don’t put them all up for sale because of what it would do to property prices further reducing the price of lender owned.

In the metro Minneapolis/St. Paul market the median sold prices are lender owned $105,000, short sale $143,000 traditional sale $205,000.

If you are interested in zip code 55391 that is where I work (Wayzata) and office.
Web Reference: http://thedobbinsgroup.com/
0 votes Thank Flag Link Fri Sep 9, 2011
Dobie,

There's a lot going on behind the scenes.....

Many are asking the same question but one of the reasons is because some of the larger banks are making deals with investment companies that allows them to approach home owners that are nearing foreclosure and making arrangement with them hand over the title in exchange for not foreclosing and having their credit intact. These arrangements usually involve attorney groups and bulk numbers of homes.

This is one of the major contributors to the mysterious evaporation of the "shadow inventory" of foreclosed homes. It's a win-win-win situation. The bank gets the debt off their books, the homeowner's credit is not trashed further, and the investment group make a profit.

One that we were personally involved in saw the invenstment group gain title for between $80,000 and $90,000 and then put it on the market in the $150,000 range. We were told that this south Florida investment group had agreed to handle 50-60 of these destitute homes.

So the answer to your question is that the lenders are resorting to a more creative means of handling their problem. Let's fact it....what owner wouldn't hand over the keys and title for a clean bill.

Hope this helps,

Bill
0 votes Thank Flag Link Fri Sep 9, 2011
There may be many reasons why they are holding on to their inventory. Some may be waiting for the market to level out/rebound so they can make a profit or they may be trying to stay in line with thier budgets as to when they can release the foreclosure or take the loss on their financials. No one knows the exact reason as each bank has their own policies. In theory, the banks aren't losing anything by holding on to their inventory. It's just like stock, if you don't sell it you don't lose any real money.

The banks have to pay a lot of expenses (legal fees, trash outs, maintenance, etc) for people going into foreclosure. And what many do not realize is that if the foreclosure is not handled correctly by the people going into foreclosure, the banks can recover the expense they have incurred. The banks can also sell the debt to collection agencies to go after the people liable.
0 votes Thank Flag Link Fri Sep 9, 2011
I read the banks have about 4 years worth of "shawdow inventory" on the books.
0 votes Thank Flag Link Fri Sep 9, 2011
I have to wonder if the banks are really holding property and not listing them is true or another urban rumor being spread on the Internet. I have no knowledge of what banks have and are sitting on and so I have to wonder if the people spreading this story do either. It could be true, but it makes no sense so I wonder how true it really is.
0 votes Thank Flag Link Fri Sep 9, 2011
This is one thing that has befuddled us Real Estate Experts:
We don't feel much like experts;
We can't understand the wisdom of this:

The Government doesn't want them to hold Real Estate;
They can't be making any money by holding them,
They are not collecting rent,
Many houses are vandalized
They would have to insure them, at least with a "blanket" policy,

Maybe the error in our thinking is that there is some WISDOM behind this.
0 votes Thank Flag Link Fri Sep 9, 2011
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